Market surplus of emission allowances rises; over 270 million to be withdrawn from circulation

The market surplus of emission allowances, measured by the number of allowances in circulation, rose by around 3% year on year to 1.148 billion units (equivalent to 1.148 billion tonnes of CO2). Under the rules of the so-called Market Stability Reserve (MSR), a further 276 million allowances will therefore be gradually withdrawn into the reserve between September 2025 and August 2026. The European Commission announced. 

The European Union decided to establish the MSR in 2015, when emission allowance prices were well below EUR 10/t CO2 and the EU was looking for a way to raise them to a level that would encourage operators of installations covered by the EU ETS to implement decarbonisation measures.

Despite the significant rise in emission allowance prices in recent years, however, the rules governing the placement of allowances in the MSR remain unchanged. As before, 24% of the market surplus is placed in the MSR if it exceeds the threshold of 833 million units. Conversely, if the number of emission allowances in circulation were to fall below 400 million, 100 million allowances would be released from the reserve onto the market.

The recently published surplus figure of 1.148 billion allowances means that 276 million allowances will be withdrawn from auctions between September 2025 and August 2026. That is 9 million more than in the previous period.

According to analysts, the year-on-year increase in the surplus of emission allowances in circulation is due to factors on both the supply and demand sides. On the supply side, the volume of allowances auctioned has been increased to finance the REPowerEU strategy, which aims to wean the EU off Russian fossil fuels.

Lower demand for emission allowances, meanwhile, is mainly due to the slow pace of recovery in European economies and rising electricity generation from renewable energy sources, which is displacing generation from fossil fuel-fired power plants.