The European Commission has presented a new proposal to amend the Market Stability Reserve (MSR) for the upcoming ETS2 system, introducing several targeted adjustments aimed at ensuring a smoother, more predictable start to the market.
The initiative follows the commitments made by Commissioner Wopke Hoekstra at the October Environment Council and aligns with the broader push from a majority of Member States to strengthen ETS2’s stability framework before its launch. While the legislative process on postponing the start of ETS2 to 2028 is still ongoing, the Commission continues to prepare the operational infrastructure so that the system can enter its early phase with clearer rules.
The proposal builds on the elements already discussed in recent weeks. Earlier reforms presented in October focused on doubling the safeguard release mechanism and enabling an earlier start of ETS2 auctions. The package also extended the MSR’s lifetime into the 2030s. This update largely preserves these decisions but introduces several refinements that adjust how liquidity support will operate in practice during the system’s initial years.
The most significant change is the removal of the rule that would have invalidated any MSR allowances not released by the end of 2030. Under the new proposal, all 600 million ETS2 allowances held in the reserve will remain valid beyond 2030, substantially increasing long-term intervention capacity and reducing uncertainty around liquidity in the 2030s.
A second adjustment introduces a more flexible release mechanism when the total number of allowances in circulation (TNAC) approaches the lower threshold that triggers MSR intervention. Instead of relying on a strict cut-off at 210 million allowances, the Commission proposes a gradual release when TNAC is between 210 and 260 million. Under this rule, the MSR would inject 100 million allowances minus twice the difference between the TNAC level and 210 million, ensuring that support is provided even when the threshold is not crossed, but the market is tightening. "For example, at a TNAC of 230 million, the release would amount to 60 million allowances."
The third change concerns the safeguard mechanism that applies during the system’s opening years. If the ETS2 price exceeds EUR 45 (in 2020 prices), the MSR currently releases 20 million allowances, with the possibility of two interventions per year. The new amendment confirms the Commission’s earlier proposal to increase this volume by adding a 20-million top-up to each activation, bringing the total release to 40 million per trigger, or up to 80 million per year if the conditions are met twice.
The Commission stresses that these adjustments do not require reopening the ETS Directive and can be adopted within the existing legal framework. In parallel, work continues on the amendment to the Auctioning Regulation, with adoption expected in early 2026 to enable an earlier start of ETS2 auctions and make revenues available in 2027.
In addition, the Commission and the European Investment Bank are finalising the design of the ETS2 Frontloading Facility, which could advance up to EUR 6 billion in early funding to support clean-heating, energy-efficiency, and sustainable-transport investments. The Commission also commits to regularly examining and publishing ETS2-related market information so that consumers and stakeholders have a clearer view of market conditions. "A point that was among the five key requests raised by the group of 19 Member States in their joint non-paper earlier this year."
Overall, the new proposal refines, rather than redefines, the ETS2 stability architecture. The main features of the October reform remain intact, while the new adjustments strengthen liquidity support, expand the MSR’s long-term capacity, and provide clearer rules for intervention during tight-market conditions.
ClearBlue Markets will continue to closely monitor upcoming discussions and keep clients informed of any key developments.
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