In a letter addressed to 19 Environment Ministers, Climate, Net Zero and Clean Growth Commissioner Wopke Hoekstra announced on 21 October 2025 the European Commission’s intention to amend the rules governing the Market Stability Reserve (MSR). The 19 Ministers had co-signed a joint non-paper in June on price uncertainties in the new Emissions Trading System for buildings and road transport (ETS2).
This move by the Commissioner is a direct response to the concerns of several Member States over potential price fluctuations and excessive price increases in ETS2, which is set to start in 2027. However, the decision to reopen the relevant legislation carries significant risks, as it could become the first step toward rolling back parts of the European Green Deal legislative package, which was only recently agreed following extensive negotiations among EU institutions.
The Commission has proposed five measures to enhance price stability and support the transition:
- Strengthening the MSR intervention mechanism: The possibility to release up to 80 million allowances annually (up from 40 million previously) to prevent unwarranted price increases. Lower carbon prices may reduce the immediate impact of ETS2 on households and businesses. However, they also limit Member State revenues from ETS2, which are needed to finance more investments that would permanently end fossil fuel use in heating and mobility.
- Retaining unused allowances in the reserve: All allowances not released by 2030 will remain in the MSR. While this would improve price predictability, it also risks leading to a significant increase in emissions overall.
- Earlier and smoother MSR intervention: Gradual injections of allowances into the market when liquidity is low, helping maintain a stable and predictable carbon price signal.
- Earlier start of ETS2 auctions: As of 2026, revenues from auctions will already be available to Member States to support investments and social measures. This would help households and businesses prepare ahead of the launch of ETS2 in 2027.
- Establishment of a “Frontloading Facility” in cooperation with the European Investment Bank: This mechanism would pre-finance decarbonisation projects, support low-income households, and speed up the shift to zero-emission solutions.
Although these measures aim to improve predictability and confidence in the carbon market, the core political question remains crucial. The introduction of ETS2 is key to reducing emissions in the buildings and transport sectors and increasing public revenues to finance interventions that protect vulnerable households and businesses. The debate cannot be limited to short-term price management. It must focus on strengthening climate ambition and scaling up the resources needed for essential investments.
The sooner investments are made in fossil-free solutions, the lower ETS2 prices will be, and the smoother and less demanding the transition for households and small businesses
Ensuring carbon price stability is important. Yet the real challenge for Member States is to make timely use of available EU funds such as the Social Climate Fund, as well as revenues from ETS2 and ETS1 auctions, to shield vulnerable households and invest in clean, affordable options for heating and mobility before 2027.
All of the above should be embedded in ambitious Social Climate Plans in line with the Social Climate Fund Regulation. However, the 19 Member States calling for changes in ETS2 have been slow to finalize their plans, risking delays in the disbursement of Social Climate Fund resources.
The upcoming revision of the MSR must not lead to delays or a weakening of EU climate policy. Rather, it should be seen as an opportunity to promote more ambitious and socially just national decarbonisation strategies that strengthen Europe’s energy security and resilience.
Read the full statement of the LIFE Effect project partners, with the participation of The Green Tank.
