The European Union (EU) will raise from 400 million to 700 million the maximum number of emission allowances for greenhouse gases that can be held in reserve, after a provisional agreement was reached, the announcement said today.
According to a statement, the Council of the EU and the European Parliament (EP) reached a provisional agreement on Tuesday that increases from 400 to 700 million the maximum number of emission rights that can be accumulated in the European reserve, a mechanism that stores surplus allowances to be returned to the market when needed and that, under current rules, permanently removes those that exceed the established limit.
According to the statement, this targeted change to this reserve mechanism “will increase liquidity and long-term market predictability, while simultaneously protecting the competitiveness of industry.”
The provisional agreement still needs to be confirmed by both institutions before its formal adoption.
The reserve withdraws from the European Union Emissions Trading System the excess greenhouse gas emission allowances, raising the cap from 400 million to 700 million.
For the Member States and the Parliament, the larger number of allowances will bolster the EU carbon market’s long-term stability and provide a greater buffer against future market fluctuations, while at the same time ensuring safeguards against an oversupply of allowances.
The co-legislators also agreed on a “gradual reduction of the invalidation threshold within the broader review of the EU ETS planned for 2030, in order to ensure a coherent overall approach.”
The Market Stability Reserve, created in 2019, governs the functioning of the carbon market, reducing the supply of allowances in the market when there are too many in circulation and injecting allowances when there is a shortage.
