New Rules to Keep Carbon Prices Steady

What the document is about
The European Union is changing the rules that keep the carbon‑price market for buildings, road transport and other sectors stable. The changes are made to the “market stability reserve” (MSR) that holds extra carbon allowances to smooth price swings when the new emissions‑trading system (ETS 2) starts.

Why the change is needed
Since ETS 2 began in June 2023, new data and experience show that the market can still be too volatile. The MSR must be adjusted so that prices are more predictable, liquidity is higher, and the market can absorb shocks without sudden price jumps. Member States and other stakeholders have asked for these adjustments.

How the problem is solved

1. Keep allowances in the reserve longer – The rule that any allowance still in the reserve after 31 December 2030 would become invalid is removed. All 600 million allowances in the reserve stay valid, giving market participants more confidence.
2. Smarter release of allowances – When the total number of allowances in circulation (TNAC) is between 210 million and 260 million, the MSR will release allowances gradually:
   Release = 100 million – 2 × (TNAC – 210 million).
   This prevents a single allowance from triggering a large price swing.
3. Extra allowance release when prices rise – If the carbon price goes above €45 per tonne, the MSR will release an additional 20 million allowances (up to twice in a 12‑month period). This gives the market more supply when prices are high, reducing volatility.

What changes as a result

• The MSR’s design stays the same; only the parameters are updated.
• The 600 million allowances in the reserve remain valid beyond 2030.
• The injection rule now uses the 210‑260 million threshold formula.
• A 20 million‑allowance top‑up is added for high‑price situations.
• No new budget is needed; the Commission will not increase its spending.
• The decision will become effective 20 days after it is published in the Official Journal.

These changes aim to make the ETS 2 market more stable, predictable and liquid, helping Member States and consumers plan their climate actions more confidently.