EU to enhance stability and predictability of carbon market

TALLINN - The European Commission on Wednesday announced the first concrete measure to enhance the European Union's Emissions Trading System (ETS). The proposal adjusts the system's Market Stability Reserve to ensure a more stable and effective carbon market.

Under the current system, all emission allowances in the reserve exceeding 400 million are canceled. The proposed change would halt this cancellation, allowing these allowances to be maintained as a buffer to stabilize the market when needed. The Stability Reserve reduces the supply of allowances to the market when too many are in circulation and adds more when allowances are scarce.

The ETS is the European Union's primary tool for reducing carbon emissions. Primarily thanks to the ETS, or the Emissions Trading System, emissions within the EU have decreased by 39 percent between 1990 and 2024, while the economy has grown by 71 percent.

The ETS has significantly reduced the consumption of fossil fuels and the EU's dependence on their import. Additionally, it has enabled substantial investments in clean and low-carbon energy sources.

Clean energy sources are domestic, thus increasing the EU's energy independence. However, considering current challenges, the ETS must also be updated and made more flexible.

In the context of increased energy price volatility and geopolitical tensions, the Commission is working with member states to ensure the system remains stable and fit for purpose.

This proposal is the first step and will be submitted to the European Parliament and the Council for adoption under the ordinary legislative procedure. A comprehensive review of the Emissions Trading System is scheduled for this July.