The Members of the European Parliament today adopted a proposal that runs counter to the European Commission’s stance and preserves the mechanism for invalidating greenhouse gas emission allowances, raising its threshold to 650 million emissions.
Under the EU’s current Emissions Trading System (ETS), all allowances above the 400 million emissions threshold are cancelled, with the European Commission proposing to end this invalidation mechanism, allowing the allowances to be kept as a safety buffer to support market stability.
For its part, the European Parliament (EP) today approved in Strasbourg (France) a report — 367 votes in favour, 240 against and 59 abstentions — that counters Brussels’ proposal and argues for maintaining the invalidation mechanism, proposing to raise the limit, starting 1 February 2027, from 400 million to 650 million allowances.
“This would maintain a safety reserve large enough to absorb imbalances between supply and demand, while also avoiding the possible excessive accumulation of allowances in the reserve that could occur under the Commission’s proposal, according to an EP statement, adding that it aims to ‘ensure the orderly functioning of the European carbon market and the market stability reserve, increase long-term market predictability and contribute to and align with the EU’s climate targets for 2040 and 2050’.”
The stabilization reserve is a central element of the ETS, the world’s largest market for carbon emission allowances, having been created in 2019 to regulate supply: if there are too many allowances in circulation in the market, they are automatically withdrawn from the market and stored in a reserve.
On the other hand, if the market needs liquidity, the reserve can release allowances.
The rule currently in force and which the Commission wants to abolish provides that the quantity of allowances held in the reserve above the 400 million cap is permanently canceled.
With today’s approval, the Parliament is ready to begin negotiations with the Member States with a view to a common position.
