Market Stability Reserve (original) (raw)

The Market Stability Reserve (MSR) was agreed in 2015 as a long-term solution to the surplus of allowances on the EU carbon market. Aimed at rebalancing supply and demand as well as at making the carbon market more resilient to major future shocks, the MSR was established in 2018 and began operating in 2019.

The MSR adjusts the supply of allowances to be auctioned under the EU ETS year on year in accordance with predefined thresholds of the “total number of allowances in circulation” (TNAC). The rule-based functioning of the MSR leaves no discretion to the Commission or Member States.

• When the TNAC exceeds 833 million, the MSR withdraws allowances from auctions, reducing supply in the EU carbon market. Allowances are withdrawn from auctions at a rate of 24% of the TNAC, over a 12-month period.
• When the TNAC falls below 400 million, the MSR releases 100 million allowances for auction, increasing supply in the EU carbon market.

From 2024, a specific intake mechanism is applied when the TNAC is between 833 and 1 096 million. The MSR continues to withdraw allowances from auctions, but the withdrawal volume equals the difference between the TNAC and 833 million. This mechanism mitigates the “threshold effect” and gives stakeholders more confidence about the expected supply of allowances to auctions in the short term.

Starting in 2023, allowances held in the MSR above a certain threshold are invalidated annually. The invalidated allowances are permanently removed and can no longer be released from the MSR. In 2023, the applicable invalidation threshold equalled the volume of allowances auctioned in 2022. From 2024 onward, the applicable threshold is fixed at 400 million allowances.

Total number of allowances in circulation

Since 2017, the Commission has published the calculation of the total number of allowances in circulation (TNAC) on an annual basis. This serves as the sole indicator for determining whether allowances are to be placed in or released from the MSR. The TNAC for 2023 was published on 1 June 2024. All past TNAC publications are available in the Documentation section.

Surplus of allowances

In 2013, the surplus of allowances in the EU ETS exceeded 2.1 billion. With the backloading of 900 million allowances, this surplus was reduced to approximately 1.78 billion by 2015. Since 2019, the MSR has been withdrawing allowances from auctions every year. In 2023, the surplus amounted to 1.11 billion.

On 1 January 2023, 2.5 billion allowances in the MSR holdings were invalidated. On 1 January 2024, the MSR invalidated another 381 million allowances.