Radovan Ďurana, Line Andersen, and Carlo Stagnaro // 29 April 2026

This briefing examines the European Commission’s proposed amendment to the Market Stability Reserve (MSR) within the EU Emissions Trading System (ETS). While the proposal aims to strengthen the system by retaining surplus allowances as a buffer against future shocks, the paper argues that it is unlikely to have any meaningful practical effect under current market conditions.

The analysis shows that the mechanisms required to release allowances from the MSR are effectively dormant. Both trigger conditions are highly unlikely to be met, meaning that increasing the size of the reserve does not materially improve the system’s responsiveness or stability. As a result, the proposal is characterised as a political signal rather than a substantive reform of the carbon market.

The briefing situates this critique within a broader concern about the direction of EU climate policy. High energy prices and declining competitiveness have become persistent challenges, while overlapping regulatory instruments risk inflating the overall cost of decarbonisation beyond economically efficient levels.

Looking ahead, the paper argues that more fundamental reform is required. It calls for a reassessment of the EU’s decarbonisation trajectory, a reduction in overlapping policy instruments, and the introduction of clearer, more predictable rules within the ETS framework.

The main findings of the briefing include:

• The proposed MSR amendment is unlikely to affect market outcomes under current conditions.
• The existing triggers for releasing allowances from the MSR are effectively inoperative.
• The reform does not materially enhance the EU’s ability to stabilise carbon prices.
• Overlapping climate policies risk increasing the implicit cost of carbon beyond optimal levels.
• High energy prices and weak competitiveness remain ongoing challenges for the EU economy.
• More fundamental ETS reform is needed to improve predictability and support long-term investment.