Glossary
Market stability reserve (MSR)
Under the EU Emissions Trading System (EU ETS), a reserve that takes allowances out of EU countries' auctions when too many are in circulation and releases them when too few are. Allowances have been placed in it since 2019.
- Legal source
- Market Stability Reserve Decision, Article 1 ↗
- Who it applies to
- The auctions of allowances by EU countries: the reserve changes how many allowances they auction. Our reading: it sets no obligation for businesses; it changes the supply of allowances at auction.
- Example
- If the total number of allowances in circulation published by the Commission were 1,000 million, that is between 833 million and 1,096 million. The difference from 833 million, 167 million allowances, would be deducted from the allowances to be auctioned and placed in the reserve over 12 months beginning on 1 September.
- Also known as
- MSR, EU ETS market stability reserve
The Commission publishes the total number of allowances in circulation each year, by 1 June of the following year. That number decides what the reserve does:
- Above 1,096 million, 12% of the total is deducted from the auctions and placed in the reserve over 12 months from 1 September, a percentage doubled until 31 December 2030
- Between 833 million and 1,096 million, the amount above 833 million goes into the reserve
- Below 400 million, 100 million allowances are released from the reserve and added to the auctions
From 2023, allowances held in the reserve above 400 million are no longer valid. The ETS Directive counts allowances placed in the reserve among those EU countries don't auction, together with allowances given as
Pending, not law: Commission proposal COM(2026) 153 would stop the invalidation of allowances in the reserve. Commission proposal COM(2026) 616 would set the share taken in at 12%, lower the upper threshold to 947 million, and lower the thresholds by 4% a year from 2029.
Our EU ETS hub explains how the reserve works next to the cap, and our Decode of the July 2026 review covers the proposed changes.
Regulations
EU Emissions Trading System (EU ETS)
Implementing Decision (EU) 2026/1862 set the cross-sectoral correction factor for free allocation at 100% for each year from 2026 to 2030
Used in
EU ETS market stability reserve: what the provisional deal on invalidating allowances would change
Council and Parliament provisionally agreed to keep invalidating EU ETS reserve allowances, but above 700 million instead of 400 million. Not law yet.
EU ETS review 2026: what the Commission's proposal would change, for whom and from when
What the Commission's July 2026 EU ETS review proposal would change for installations, ships, flights, waste incinerators and EU countries, and from when.