Commission welcomes political agreement on rules enhancing stability and long-term resilience of EU carbon market

The European Commission welcomes the provisional political agreement reached by the European Parliament and the Council on a targeted amendment to strengthen the Market Stability Reserve (MSR) of the EU's Emissions Trading System (EU ETS).

Following the Commission's proposal in April 2026 and delivering on the European Council conclusions last week on 16 October, this swift agreement will help to ensure a stable, well-functioning carbon market in the EU and enhance EU ETS' resilience to excessive price volatility. As a result, it also makes concrete progress on the implementation of the ‘One Europe, One Market' roadmap agreed among EU institutions to strengthen Europe's competitiveness by the end of 2027.

Under the current system, all emission allowances in the reserve above 400 million are invalidated. Thanks to the agreement, the reserve will be able to retain up to 700 million allowances as a buffer to support future market stability and predictability. These new rules will reinforce the reserve's capacity to operate in the longer term, while preserving the fundamental rules-based design of the system and its environmental integrity. The MSR reduces the supply of allowances to the market when there are too many in circulation and injects allowances when there is scarcity.

This agreement sends a clear signal that the EU is committed to a predictable and reliable carbon market, providing greater certainty for businesses, and investments in clean transition. It is a first step towards a wider modernisation of the Market Stability Reserve, for which further reforms have been proposed by the Commission as part of the separate MSR reform and the EU ETS review on 17 July 2026.

Next steps

Following this provisional agreement, the European Parliament and the Council of the EU will have to formally adopt the text. Thereafter, the amendment of the Market Stability Reserve Decision enters into force upon publication in the Official Journal of the EU. 

Background

First introduced in 2019, the MSR is designed to enhance the resilience of the EU ETS by adjusting the supply of allowances in response to market developments, making the carbon market more resilient to future shocks and price volatility. The MSR contains price volatility by reducing auction volumes during periods of supply surpluses and releasing allowances in periods of scarcity based on predefined rules.

The Commission tabled its proposal to strengthen the MSR in April 2026, following President von der Leyen's announcement at the March European Council. This provisional agreement addresses an immediate need to strengthen the resilience of the carbon market by preserving allowances in the reserve, while the broader ETS review provides the opportunity to modernise the MSR's functioning for the next decade.

For more information

EU Emissions Trading System

Market Stability Reserve