EC Delivers Key ETS2 Reforms: What it Means for the Carbon Market

The European Commission has just released a crucial set of EU ETS2 adjustments, responding to calls from 19 Member States for enhanced market stability, predictability, and resilience in the new carbon market for buildings and road transport.

While the Commission did not address the request to publish regular market-informing data, it agreed to implement all the remaining operational changes.

Key Reforms to Boost Market Stability

We've analyzed the changes and here are the critical updates:

• Strengthened Price Control Mechanism: The volume of safeguard allowances released when ETS2 prices exceed EUR 45 will be doubled from 20 to 40 million per trigger. This mechanism can now be applied twice per year, potentially injecting up to 80 million allowances annually during 2027–2029 to ensure price stability.
• Early Auctions to Start Mid-2026: Auctions will be advanced to mid-2026. This will make carbon revenues available earlier to Member States, supporting investments and easing the transition to cleaner heating and transport fuels. It also provides companies and consumers with a clearer and earlier price signal ahead of the system’s start.
• Market Stability Reserve (MSR) Extended: The MSR's life is extended beyond 2031 as all unused allowances by the end of 2030 will remain in the reserve. This means the MSR rules will continue to apply post-2030, significantly increasing the total volume of allowances that could eventually be released into the market.
• Smoother MSR Intervention: The MSR is set to become more flexible by adding a buffer to the lower trigger threshold, enabling gradual, proportional releases when liquidity tightens. This move is designed to offer smoother intervention and cushion the market against sudden liquidity shocks.

Additional Measures

Beyond technical reforms, the Commission also announced the creation of an ETS2 Frontloading Facility with the European Investment Bank (EIB). This instrument is designed to pre-finance Member States' investments in clean heating, energy efficiency, and sustainable transport, with a focus on supporting vulnerable low- and middle-income households. This initiative aims to enhance the political and social acceptability of the transition.

Deeper Analysis Available

In a timely Live Update for our EU Market Intelligence subscribers, ClearBlue provided additional detail including updated long-term price forecasts, analysis of each proposed measure and its expected impact on market dynamics. We also provided an exclusive webinar for clients to hear directly from our experts. 

To get this level of in-depth, expert analysis on the European and global carbon markets, connect with our Market Intelligence team. We provide the intelligence you need to navigate these complex regulatory landscapes.