EU Emissions Trading System regulatory changes

European Union ambassadors and member states have reached an agreement to modify the Emissions Trading System (ETS) to stabilize carbon market prices. The changes focus on the Market Stability Reserve (MSR), where surplus CO2 allowances will no longer be automatically cancelled when they exceed 400 million permits.

Initially, the agreement proposed retaining these surplus permits to serve as a supply buffer against sharp price spikes, a move driven by pressure from nations such as Poland and Italy to manage energy costs. While some analysts warned that this could lead to an “unprecedented glut of allowances” that might undermine climate goals, the policy was further refined.

Under the finalized terms, the automatic cancellation of allowances exceeding the 400 million threshold will be frozen until the end of 2030. These surplus credits will remain in the reserve to mitigate risks from supply shortages and fuel market volatility. Beginning January 1, 2031, the threshold for triggering cancellations will permanently increase to 800 million allowances.