The EU starts the ETS reform process by focusing on the market stability reserve in the face of intensifying industry pressure on carbon costs

The European Commission has taken the first step in what is expected to be a comprehensive reform of the EU’s Emissions Trading System, proposing a targeted change to the Market Stability Reserve to address concerns about energy costs, pressure on carbon prices and industrial competitiveness. The proposal would prevent the automatic invalidation of allowances that exceed the current threshold of 400 million, allowing them to remain available as a reserve rather than being cancelled outright. This move is significant because it indicates that Brussels is willing to adjust the mechanics of the bloc’s flagship carbon market ahead of the full overhaul scheduled for July 2026. At the same time, the Commission is trying to present the change as a technical reinforcement of market stability, rather than a setback in carbon pricing. In its explanation of the proposal, the Commission stated that the adjustment aims to keep the Emissions Trading System (ETS) “fit for purpose” by simultaneously supporting decarbonisation, competitiveness and energy security.

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