Rather than ending the market stability reserve's invalidation mechanism, as the Commission proposed, MEPs want to keep it but raise the threshold in 2027 from 400 to 650 million allowances.

By 43 votes for, 21 against and with 6 abstentions, Parliament’s Committee on the Environment, Climate and Food Safety today adopted its report on the Commission’s proposal to amend the market stability reserve (MSR) for the EU Emissions Trading System (ETS).

Under the current rules, all allowances in the reserve above 400 million are invalidated. The Commission has proposed stopping the invalidation mechanism immediately, allowing illimited numbers of additional allowances to be kept as a buffer in the reserve, which could support market stability.

To ensure an orderly functioning of the European carbon market and the MSR, increase long-term market predictability, and contribute to and align with the EU’s 2040 and 2050 climate targets, MEPs propose keeping the invalidation mechanism but raising its threshold next year from 400 to 650 million allowances. This would maintain a sufficiently large buffer to absorb supply and demand imbalances, while avoiding the possible excessive build-up of allowances in the reserve that could occur under the Commission’s proposal.

MEPs suggest the increase of the MSR threshold take effect from 1 March 2027.

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Rapporteur Pierfrancesco Maran (S&D, IT) said: “Today’s vote strikes the right balance between climate ambition and industrial competitiveness. Raising the invalidation threshold and setting a clear date for entry into force gives the MSR the necessary flexibility while safeguarding the EU ETS. The agreement supported by a broad majority sets the scene for the upcoming ETS revision, proving that ambitious climate and industrial policies can go hand in hand."

Next steps

Parliament is scheduled to adopt its mandate for negotiations with EU member states at the September 2026 plenary session.

Background

The MSR has been operational since 2019 to address the structural imbalance between the supply of and demand for allowances in the EU ETS. The MSR aligns the supply of emissions allowances in the ETS more closely with demand by reducing or increasing the total number of allowances in circulation to stabilise the market.

There is also separate MSR for the EU emissions trading system for buildings, road transport and additional sectors (ETS2). In June 2026, MEPs made a deal with Council for a revision to cushion consumers against sharp price swings.