ETS2: changes to market stability reserve for buildings and road transport

Allowances to be released one month earlier in cases of sudden price spikes

Unallocated allowances to stay in the market stability reserve after 2031

€45 cap should be prolonged beyond 2029 and indexed to 2026 prices

Proposed changes to ETS2 to help households reduce fossil fuel dependency

Parliament is proposing changes to the EU emissions trading system (ETS2) market stability reserve for the buildings, road transport and other sectors to shield households.

By 433 votes for, 120 against and with 91 abstentions, Parliament adopted its position on the Commission’s proposal to amend the market stability reserve (MSR) for the new emissions trading system for road transport and buildings (ETS2).

While the MEPs agree in principle with the Commission’s proposal to allow the release of more allowances when the cost of carbon exceeds €45 per tonne CO2 equivalent (in 2020 prices), they want the Commission to react more quickly to sudden price spikes and to start releasing allowances from the MSR after one month instead of two as proposed by the Commission.

Also, rather than cancelling all unused allowances transferred to the MSR from 1 January 2031, as proposed by the Commission, the MEPs want a gradual process, with 50% of the unused allowances being void from 1 January 2034 and all remaining unused MSR allowances cancelled from 1 January 2036. They also want the Commission to assess the appropriateness in this approach within four years of the launch of ETS2.

The report asks the Commission to assess whether to prolong the current cap of €45 per tonne CO2 beyond 2029 and to index it to 2026 not 2020 prices.

Further changes needed to ETS2

The MEPs underline that the MSR revision alone is not sufficient to mitigate the negative impact of the ETS2. They highlight the need for complementary decarbonisation measures to help households reduce fossil fuel dependency.

They therefore propose to consider other options, such as allowing member states to temporarily exempt residential buildings from the ETS2, if they have other measures in place to meet their effort sharing targets, to protect citizens from the most severe potential social impacts of the scheme.

They also call for a comprehensive impact assessment of ETS2 to assess its impact on EU climate goals as well as its social impact.

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The rapporteur Danuše NERUDOVÁ (EPP, Czechia) said: “Europe must do more to shield households from the potential negative social impacts of the ETS2. To push the revision of the MSR in the right direction we have proposed concrete measures to prolong the €45 cap beyond 2029 and to lower it through indexation to 2026 prices. The Commission should also assess the possibility for member states to temporarily exempt residential buildings from the ETS2 and strengthen the social climate fund to ensure that the ETS2 is made for citizens, so they can help drive decarbonisation.”

Next steps

Parliament is now ready to start negotiations with EU member states.

Background

Following the revision of the EU Climate Law, the new ETS2 system has been postponed by one year and will enter into force on 1 January 2028. The ETS2 aims to reduce CO2 emissions from buildings and road transport by 42% by 2030, compared to 2005 levels, to help reach EU’s 2050 climate neutrality goal. The European Social Climate Fund will be available to help vulnerable citizens most affected by energy and transport poverty.

The MSR was established in 2015 to address the structural imbalance between the supply of and demand for allowances in the EU ETS. The MSR aligns the supply of emissions allowances in the ETS more closely with demand by reducing or increasing the total number of allowances in circulation to stabilise the market. A separate MSR for ETS2 was created in 2023.