European Commission proposes change to emissions trading system, allowances to remain in reserve

Brussels, 1 April (CTK) - The European Commission has presented the first proposed change to the EU ETS emissions trading system. It proposes amending the so-called Market Stability Reserve (MSR), which regulates the emissions allowances market. Under the proposal, allowances would no longer be invalidated if more than 400 million are held in the reserve. Instead, they would be kept as a stock for future use. The aim is to increase stability and predictability, the commission said. The change to the emissions allowance system was called for in particular by Czech Prime Minister Andrej Babiš.

The Market Stability Reserve reduces the supply of emissions allowances on the market when there is a surplus and releases them when there is a shortage. According to the EU executive, the change strengthens the MSR mechanism’s role as a buffer and improves its ability to respond to future developments, including market tensions or excessive price volatility. The proposal will now be submitted for approval to the European Parliament and the Council of the EU, which represents the member states.

The commission will present a comprehensive review of the EU ETS emissions trading system this July, the statement also said.

According to EU Climate Commissioner Wopke Hoekstra, today’s proposal is “the first step towards modernising the emissions allowance market”. “By strengthening the Market Stability Reserve, we are making the EU ETS more resilient to volatility and ensuring that it continues to support decarbonisation, competitiveness and clean investment,” Hoekstra added.

The ETS emissions trading system is intended to motivate companies to reduce emissions. Companies must buy allowances for every tonne of CO2 they emit. The more they emit, the higher their costs, giving them an incentive to invest in cleaner technologies. European Commission President Ursula von der Leyen has previously said that the ETS remains “a proven tool for supporting the transformation of industry”, but that it needs to be modernised and made more flexible.

Czech Prime Minister Babiš is one of the EU leaders who have been vocal in calling for a change to the EU ETS emissions trading system. After the recent EU summit, Babiš said, among other things, that Czechia would continue to seek allies for its proposals, including exempting energy-intensive industries from the allowance system until 2034.

According to the Czech prime minister, emissions allowance prices feed into electricity prices in individual countries. EU data show that ETS costs account for an average of about 11 percent of electricity bills in Europe. The figure varies across the 27 member states: in Poland, for example, it is 24 percent, reflecting the dominant role of coal-fired power plants in the country’s energy mix. In Czechia, it is 20 percent, a similarly high share to Italy’s.

The ETS 1 system is Europe’s main emissions allowance market, covering energy, heavy industry and aviation in the EU. ETS 2 is due to come into operation in 2028, after a one-year delay, and is expected to cover road transport and building heating.

The European Commission again stressed that the EU ETS emissions trading system is “a key tool for decarbonisation”. “It has significantly reduced fossil fuel consumption, thereby limiting the union’s dependence on imports and strengthening its resilience. At the same time, it has driven significant investment in the transition to clean energy, particularly renewable and low-carbon sources,” the EU executive said.

According to the EC, domestic emissions in the European Union have fallen by 39 percent, primarily thanks to the ETS, while the economy grew by 71 percent between 1990 and 2024. Today’s proposal continues to support emissions reductions while providing the stability and predictability industry needs to invest in the transition, the commission added.

The price of an EU emissions allowance rose to 74 euros per tonne of CO2 after the EC announcement. Experts say this was a reaction to the fact that Brussels did not make more significant changes to the ETS system. “It’s more an effort to show that something is being done, without actually doing very much,” Reuters quoted Trevor Sikorski of Energy Aspects as saying.