AGREEMENT ON MEASURES TO MITIGATE THE SOCIO-ECONOMIC IMPACT OF ETS2
The European Parliament and Member States reached a provisional agreement on 11 June on amendments to the EU Emissions Trading System for buildings and road transport (ETS2). The changes are intended to help contain excessive carbon price increases while preserving the environmental objectives of the scheme.
A key element of the agreement is the strengthening of the market intervention mechanism. The co-legislators maintained the European Commission’s proposal to double the number of allowances that can be released from the ETS2 Market Stability Reserve (MSR) from 20 million to 40 million when the carbon price exceeds €45 per tonne of CO₂. This mechanism, which will apply until 2030, can now be triggered twice per year, allowing up to 80 million allowances to be injected into the market annually if required.
The agreement also introduces a more gradual release of allowances from the reserve when the supply of allowances on the market falls below 260 million. Under the current rules, intervention begins only when the market supply drops below 210 million allowances. The revised threshold is intended to improve market stability and reduce the risk of sharp price fluctuations.
Another important point of discussion concerned the 600 million allowances currently held in the ETS2 reserve. While the European Parliament had advocated for their gradual cancellation, both the European Commission and the Council supported removing the 2031 expiry date attached to these allowances. The latter approach ultimately prevailed, meaning the allowances may remain available for future use rather than being automatically invalidated.
To address concerns about the long-term impact on the market, the Parliament secured a review clause requiring the European Commission to assess, during the 2031 revision of the legislation, whether the remaining allowances in the reserve should continue to be retained.
Environmental organisation Carbon Market Watch criticised the outcome, arguing that the eventual return of these allowances to the market could significantly weaken the emissions reduction effect of ETS2. The provisional agreement is still subject to formal approval by both the Council and the European Parliament before it can enter into force.