Dilution doesn't fix pollution: ETS2 must work for people and climate

Carbon Market Watch criticizes the European Commission's proposed reforms to the ETS2 Market Stability Reserve (MSR2), arguing that removing the 'sunset clause' and increasing allowance releases would create a 'carbon bomb' that threatens EU climate goals. While the European Parliament has proposed mitigating some of these risks by reinstating a partial expiry date for allowances and increasing funding for the Social Climate Fund, the author contends that the system still allows for too much pollution. The document urges policymakers to make the earmarking of MSR2 auction revenues for vulnerable households mandatory and to conduct a full impact assessment of the reforms.

• The European Commission's proposed MSR2 reform risks introducing approximately 500 million additional emission allowances into the system, which the author describes as a 'carbon bomb' that could jeopardize EU climate targets.
• The proposed reforms include three primary changes: lowering the threshold for allowance release from 210 million to 260 million, increasing the frequency and volume of price-control allowance injections from 20 million once per year to 40 million twice per year, and removing the 2031 'sunset clause' that would have expired unused allowances.
• Removing the sunset clause for the 600 million MSR2 buffer allowances is equivalent to 10 years of ETS2 emissions cuts, according to the Commission, and could lead to an increase in emissions during the system's first two years.
• The European Parliament's position seeks to mitigate the Commission's proposal by reinstating a partial expiry date, proposing to cancel 50% of the 600 million allowances in 2034 and the remainder in 2036.
• The European Parliament suggests that auctioning the 600 million MSR2 allowances could increase the Social Climate Fund's current €86.7 billion limit by €30-40 billion, though this is currently proposed on a voluntary basis for member states.
• The author claims the Commission bypassed public scrutiny and violated Better Regulation guidelines by failing to provide an impact assessment or public consultation for the MSR2 proposal.

APA

Wikström, E. (2026). Dilution doesn't fix pollution: ETS2 must work for people and climate. Carbon Market Watch. https://carbonmarketwatch.org/2026/06/04/dilution-doesnt-fix-pollution-ets2-must-work-for-people-and-climate/

Chicago

Wikström, Emma. Dilution doesn't fix pollution: ETS2 must work for people and climate. Carbon Market Watch, 2026. https://carbonmarketwatch.org/2026/06/04/dilution-doesnt-fix-pollution-ets2-must-work-for-people-and-climate/.

Wikipedia

{{cite press release |last1=Wikström |first1=Emma |title=Dilution doesn't fix pollution: ETS2 must work for people and climate |publisher=Carbon Market Watch |date=4 June 2026 |url=https://carbonmarketwatch.org/2026/06/04/dilution-doesnt-fix-pollution-ets2-must-work-for-people-and-climate/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{wikstrm2026dilution, author = {Wikström, Emma}, title = {{Dilution doesn't fix pollution: ETS2 must work for people and climate}}, publisher = {Carbon Market Watch}, year = {2026}, month = jun, url = {https://carbonmarketwatch.org/2026/06/04/dilution-doesnt-fix-pollution-ets2-must-work-for-people-and-climate/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }