Reforming the Market Stability Reserve of the EU ETS

The EU’s carbon market is entering new territory. As the cap tightens toward 2030 and beyond, the market is shifting from one characterised by a surplus to one of structural scarcity. This is a market environment that the Market Stability Reserve (MSR), the system’s supply adjustment mechanism, was never designed to manage.

Since its establishment, the MSR has helped absorb oversupply and rebuild confidence in the carbon price. But that task is now largely completed, and the mechanism is about to operate in a tighter and less liquid market. In such a situation, is the MSR still needed? If yes, how should it evolve to manage price volatility? Should it remain free from political intervention, or transition toward greater political discretion?

These are among the key questions raised by the European Commission's MSR reform, now moving through Parliament and Council ahead of a targeted agreement in early 2027. This workshop brings together leading EUI experts in EU climate policy to discuss the key design choices for the MSR, including revised triggers, the role of the MSR as market buffer , its rule-based nature, and the trade-offs between responsiveness and environmental integrity that any redesign will need to navigate.

Speakers will discuss how the MSR can continue to support a predictable, stable and credible carbon price signal as the EU ETS moves into a period of structural scarcity.

Chairs:

• Jos Delbeke, EIB Chair on Climate Policy and International Carbon Markets, Florence School of Transnational Governance
• Simone Borghesi, Director, Florence School of Regulation – Climate

Speakers:

• Julia Michalak, Senior Research Associate, Florence School of Transnational Governance
• Marie Missao Raude, Research Associate, Florence School of Regulation – Climate

This session is part of the EUI Climate Workshop, a forum that brings together members of the EUI community from all departments working on climate-related issues across the institution. Find out more about the workshop and the upcoming sessions here.