The European Parliament and Council have reached a provisional agreement on a key legislative proposal supporting the implementation of the EU’s 2040 climate objectives while enhancing resilience to volatility in fossil fuel imports. The agreement strengthens the Market Stability Reserve (MSR) for the new emissions trading system covering buildings, road transport and additional sectors (ETS2), helping to ensure a smooth and predictable start when the system launches in 2028.
Following the Commission’s proposal, this agreement strengthens the ETS2 safeguards by enabling stronger intervention to support market price stability and reinforcing the reserve’s capacity to operate in the longer term, while preserving the environmental integrity of the system. By strengthening the Market Stability Reserve for ETS2, the agreement sends a clear signal that the EU is committed to a predictable and reliable carbon market, providing greater certainty for citizens, businesses and those investing in the transition. Together with the Social Climate Fund, these measures will contribute to a fair and orderly transition towards climate neutrality.
Firstly, to reinforce longer-term market predictability and confidence, the capacity of the reserve to operate beyond 2030 is strengthened through the extension of the validity of ETS2 allowances held in the reserve beyond 2030, for future release if needed.
Secondly, the agreement enables stronger intervention for price stability by doubling the number of allowances to be injected if the ETS2 price rises above a certain level.
Thirdly, the agreement provides for earlier and more gradual releases of allowances from the reserve onto the market, as an additional safeguard for market stability.
The agreement on the targeted MSR changes completes a set of measures announced by Commissioner for Climate, Net Zero and Clean Growth Wopke Hoekstra at the October 2025 Environment Council to secure ETS2 market stability and accelerate early investments. Early ETS2 auctions will already start in 2027, making revenues available sooner for investments and delivering a transparent price signal. In addition, the Commission and the European Investment Bank established a new ETS2 Frontloading Facility for Member States, making up to €3 billion available to Member States over 2026-2027.
Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth said, “Climate action must not only be effective, but also fair and predictable. Today’s agreement strengthens the safeguards around the new emissions trading system for buildings and road transport, further enhancing stability and affordability for citizens and businesses, while setting us on a more predictable path toward a low-carbon future.”
Next steps
Following this provisional agreement, the European Parliament and the Council of the EU will have to formally adopt the text. Thereafter, the amendment of the Market Stability Reserve will be published in the Official Journal of the EU and enter into force.
Background
The new ETS2 system, which will become fully operational by 2028, complements other policies and measures to incentivise and support emission reductions from the buildings, road transport and additional sectors in a technology-neutral and competitiveness-friendly manner. This will be an important contribution to reaching EU’s climate neutrality goal by 2050. To support a fair transition, it is complemented by the Social Climate Fund, which will help Member States support vulnerable households, transport users and micro-enterprises through targeted investments in clean building heating and transport, as well as targeted income support measures.
The Market Stability Reserve is designed to enhance the resilience of ETS2 by adjusting the supply of allowances in response to market developments, making the carbon market more resilient to future shocks. The Commission tabled its proposal for an amendment on 27 November 2025, responding to requests from a broad majority of Member States and many Members of the European Parliament.
