Market stability reserve for the EU Emissions Trading System (EU ETS): ceasing the invalidation of allowances

Overcharging the Market Stability Reserve (MSR) would undermine the EU ETS’s ability to

maintain a predictable carbon price signal, and deliver long-term emissions reductions.

Preserving the invalidation of the allowances in the MSR is essential to safeguarding

predictability, to and maintaining the to not weaken incentives to decarbonise, and ensuring

the EU can meet its climate targets. Price containment must not come at the price of the

environmental integrity of the system. The MSR cancellation mechanism must be preserved,

while the current ETS (Article 29a) already addresses price surging concerns. Flooding the

market with allowances to address price increases (e.g. by frontloading auctions) has already

proven to destabilise the market and create discontent among investors. Each allowance

released back into the market represents more CO2 allowed to enter the atmosphere, each

intervention to drive prices down punishes first movers and innovators.