Brussels – Brussels is stepping up efforts to defuse the ticking time bomb of energy price volatility before it explodes. In a pre-emptive move, the Cypriot Presidency of the Council of the European Union and the European Parliament have reached a provisional agreement to safeguard the Market Stability Reserve (MSR), the regulatory backbone of the new ETS2 system which, starting in 2028, will levy a tax on emissions from buildings and transport. The stated objective is crystal clear: to intervene in supply and demand dynamics to “ensure a robust, stable, and predictable emissions trading market.”
The European institutions are well aware that the energy transition hinges on the confidence of businesses and consumers, and this agreement is specifically aimed at “improving market liquidity, reducing price volatility, and strengthening the system’s ability to respond to unjustified cost increases.” After all, as highlighted by
Maria Panayiotou, Cyprus’s Minister for Agriculture and the Environment, this is an “essential step towards a smooth and stable launch of ETS2,” capable of providing the necessary “predictability for households, businesses, and Member States as we move towards a cleaner future”.
The co-legislators have endorsed the Commission’s approach, reiterating the need to “enhance market predictability, reduce volatility, and further tackle excessive price increases.” To this end, the agreement extends the life of the reserve beyond 2030 and introduces a safeguard clause: an immediate doubling, “from 20 to 40 million,” of the number of allowances to be released onto the market should the cost of carbon rise above the threshold of €45 per tonne of CO2 equivalent. At the same time, to avoid speculative shocks linked to the so-called threshold effect, Europe will ensure a “more gradual and timely release of allowances” should those in circulation fall below the critical threshold of 260 million.
That’s not all. Parliament and the Council have insisted that the future review of the reserve carefully consider “the number of allowances remaining in the reserve” and that a thorough assessment be carried out of all the rules and price stability mechanisms. Above all, the agreement locks in the allocation of funds within the EU, including a binding reference to “the need for investment and the use of ETS2 auction proceeds for climate and energy transition measures in buildings and road transport.”
The new ETS2 market, originally launched in 2023 with the “Fit for 55” package, requires distributors supplying fuel and combustibles to monitor emissions and pay for the CO2 sold, with the aim of reducing emissions by 42 per cent by 2030 compared to 2005 levels. This overhaul of the scheme, called for as early as July 2025 by a united front of 19 Member States seeking a smooth launch of ETS2, will now proceed to formal ratification in both legislative chambers. The entire stability mechanism will thus be ready and operational in time for the ETS2 to become “fully operational by 2028, as agreed during the negotiations on the European Climate Law.”
English version by the Translation Service of Withub
