EU member states adjust ETS carbon allowance cancellation rules

EU member states have agreed to modify the rules for the cancellation of Emissions Trading System (ETS) allowances to stabilize the carbon market. Under the new regulation, the automatic cancellation of carbon allowances exceeding 400 million in the Market Stability Reserve will be frozen until the end of 2030.

Instead of being deleted, these surplus allowances will remain in the reserve to create a larger buffer that can be utilized during future supply shortages. This measure aims to mitigate the risk of sudden price spikes in carbon credits and, consequently, electricity prices, particularly amidst geopolitical tensions and fuel market volatility.

Starting January 1, 2031, the threshold for triggering cancellations will double to 800 million allowances, permanently increasing the reserve ceiling. This shift follows a proposal from the European Commission to provide a more flexible stabilization tool without entirely abandoning the principle of canceling surplus allowances.