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

The European Commission welcomes the provisional political agreement reached by the European Parliament and the Council on a targeted amendment designed to strengthen the Market Stability Reserve (MSR) of the EU Emissions Trading System (EU ETS). Following the Commission's proposal of April 2026 and last week's European Council conclusions of 16 October, this swift agreement will help ensure a stable and functioning carbon market in the EU and increase the EU ETS's resilience to excessive price volatility. It also marks concrete progress on the "One Europe, One Market" roadmap agreed between the EU institutions to strengthen Europe's competitiveness by the end of 2027. Under the current system, all 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. The new rules will strengthen the reserve's ability to work over the long term, while keeping the system's fundamental rules-based design and its environmental integrity. The MSR reduces the supply of allowances on the market when too many are in circulation and injects allowances when there is a shortage. This agreement sends a clear signal that the EU is committed to a predictable and reliable carbon market, giving businesses and investments in the clean transition greater certainty. It is a first step towards a broader modernisation of the Market Stability Reserve, for which the Commission proposed further reforms 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 need to formally adopt the text. The amendment to the Market Stability Reserve Decision then enters into force on the date of its publication in the Official Journal of the EU. Background First introduced in 2019, the Market Stability Reserve is designed to increase 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 auctioned volumes in periods of oversupply and releasing allowances in periods of scarcity, based on predefined rules. The Commission presented its proposal to strengthen the MSR in April 2026, following President von der Leyen's announcement at the March European Council. This provisional agreement responds to an immediate need to strengthen the carbon market's resilience by keeping allowances in the reserve, while the broader ETS review offers the chance to modernise how the MSR works for the next decade.