Managing market tightness in the EU ETS on the path to net-zero : design options and trade-offs in price-based supply adjustments

The EU ETS is approaching a structural transition. As the linear reduction factor tightens the cap toward 2030 and beyond, the system will progressively move into a regime of structural scarcity for which the current Market Stability Reserve (MSR) was not designed. The MSR’s core indicator, the Total Number of Allowances in Circulation (TNAC), is inherently backward-looking and loses informational content as scarcity takes hold. The European Commission’s comprehensive ETS revision proposal, expected in July 2026, provides a timely opportunity to examine the design space for price-based supply adjustment mechanisms: an approach that, despite its advantages over volume-based indicators and its prevalence in other emissions trading systems, remains underexplored in the EU context. This report provides a structured framework for analysing price-based supply adjustment mechanisms, organised around two core dimensions: trigger design, which determines when intervention is activated, and intervention design, which determines how supply responds once a trigger condition is met. The report maps the full range of design choices across these two dimensions, discusses their calibration and interaction, and combines them into five stylised archetypes assessed across different market regimes. The central finding is that trigger and intervention choices interact, and their combination determines the overall stabilisation properties of a mechanism. The five archetypes illustrate distinct stabilisation logics: Archetype A (MSR-Plus) offers institutional continuity with limited responsiveness to extreme conditions; Archetype B (Smoothed corridor) reacts to a smoothed price signal but may respond slowly to acute shocks; Archetype C (Gradual stabiliser) enables more fine-tuned adjustments at the cost of calibration complexity; Archetype D (High-frequency stabiliser) maximises short-term responsiveness but raises transparency concerns; and Archetype E (Crisis containment) addresses extreme price risks at the cost of environmental integrity. The performance assessment reveals a fundamental trade-off: mechanisms with sufficient responsiveness to contain extreme prices cannot simultaneously guarantee a fixed emissions cap, while those that preserve environmental integrity face capacity constraints. Hybrid configurations, combining elements across archetypes emerge as the most promising direction for the post-2030 EU ETS. The range of viable configurations is itself a resource: different stabilisation priorities call for different designs, and the framework developed here maps that space systematically. By identifying which configurations are best suited to which objectives, it provides policymakers and analysts with a structured basis for the design choices ahead.