Why ‘increasing the firepower’ of the Market Stability Reserve misses the target

The briefing argues that the European Commission's proposal to delete the MSR's invalidation mechanism would weaken the EU ETS by risking a return to structural oversupply. It asserts that the MSR must retain its ability to permanently delete allowances to maintain carbon price signals and emission reductions. Additionally, the document recommends that the MSR's intake and release thresholds and release quantities be made dynamic to scale proportionally with the shrinking ETS cap, particularly as the cap is projected to decrease from just under 1.4 billion tonnes of CO2e in 2024 to 746 million tonnes in 2031.

• The Market Stability Reserve (MSR) has effectively managed oversupply in the EU ETS by removing and deleting over 3.4 billion EU Allowances (EUAs).
• The European Commission has proposed to remove the MSR's invalidation mechanism, claiming this would 'increase the firepower' of the reserve, but the author argues this would actually neutralise its key function and risk recreating massive oversupply.
• The EU ETS is expected to remain structurally oversupplied until at least 2031, and likely until 2035, meaning any changes to the invalidation mechanism should be deferred until after 2035.
• Current MSR parameters—specifically the intake and release thresholds and the release quantity—are static and will become disproportionately large as the ETS cap shrinks. For example, the 833 million TNAC intake threshold was 60% of the 2024 cap but will be 112% of the 2031 cap.
• Removing the invalidation clause could lead to an increase in greenhouse gas emissions of up to 900 million extra tonnes of CO2, potentially hindering the EU's 2040 climate target.
• The MSR's release quantity of 100 million EUAs will represent a significantly larger portion of the total supply over time, rising from 7% of the 2004 cap to 13% in 2031, and potentially reaching a quarter of total supply by 2035.

APA

Stoefs, W. (n.d.). Why ‘increasing the firepower’ of the Market Stability Reserve misses the target. Carbon Market Watch. https://carbonmarketwatch.org/wp-content/uploads/2026/06/MSR-briefing-for-LIFE-OG_final.pdf

Chicago

Stoefs, Wijnand. Why ‘increasing the firepower’ of the Market Stability Reserve misses the target. Carbon Market Watch, n.d. https://carbonmarketwatch.org/wp-content/uploads/2026/06/MSR-briefing-for-LIFE-OG_final.pdf.

Wikipedia

{{cite report |last1=Stoefs |first1=Wijnand |title=Why ‘increasing the firepower’ of the Market Stability Reserve misses the target |publisher=Carbon Market Watch |url=https://carbonmarketwatch.org/wp-content/uploads/2026/06/MSR-briefing-for-LIFE-OG_final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stoefsndwhy, author = {Stoefs, Wijnand}, title = {{Why ‘increasing the firepower’ of the Market Stability Reserve misses the target}}, institution = {Carbon Market Watch}, url = {https://carbonmarketwatch.org/wp-content/uploads/2026/06/MSR-briefing-for-LIFE-OG_final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }