EU negotiators have reached a political agreement on amendments to the Market Stability Reserve (MSR) for the new Emissions Trading System covering buildings, road transport and small industry (ETS2).
The deal aims to provide greater price stability, particularly to combat sharp price spikes, and predictability for the controversial system, which is now scheduled to start fully in 2028.
The revised MSR will significantly boost intervention power.
The volume of allowances released per trigger will double from 20 to 40 million, and the mechanism can now be activated twice a year — allowing up to 80 million allowances to be injected annually if the carbon price exceeds €45 per tonne of CO₂ (in 2020 prices).
This effectively quadruples the previous maximum annual release.
The agreement also introduces a smoother, more gradual release of allowances at lower thresholds and removes the 2031 invalidation date, keeping the full 600 million allowance buffer available beyond 2030 for long-term market stability.
Rapporteur Danuše Nerudová (EPP, Czechia) said: “Europe must do more to shield households from the potential negative social impacts of ETS2. Today, we adopted a revision that will strengthen price stability for citizens.”
The informal agreement must now be endorsed by both Parliament and Council. It will then enter into force 20 days after it has been published in the EU Official Journal.
Separately, the European Commission is preparing a broader ETS reform for this summer in which it is considering making future free allowances for industry conditional on companies investing their decarbonisation funds within Europe.
According to internal documents, seen by German outlet Table, the goal is to reduce carbon leakage and encourage green investments to stay inside the bloc rather than moving abroad.
We have a deal! @CY2026EU and @Europarl_EN agreed on changes to the ETS2' reserve.
It will give more firepower to the MSR to stabilise prices in the future when needed, and will ensure a smoother start and operation of ETS2. This is a win for a fair and predictable transition! https://t.co/SuTuyzhcGs pic.twitter.com/2cJad2DtpS
— Wopke Hoekstra (@WBHoekstra) June 11, 2026
Unlike the existing ETS1, which mainly covers large industry, power generation and aviation, ETS2 directly prices carbon emissions from everyday consumer activities.
Fuel suppliers will be required to buy emission allowances for every tonne of CO₂ contained in petrol, diesel, natural gas and heating oil placed on the market.
These extra costs will be passed on directly to households and businesses through higher fuel prices at the pump and increased heating bills.
The result will be noticeably higher costs for driving, home heating, and goods transport, feeding through into broader increases in the cost of living.
Even with the Social Climate Fund, independent analyses show that many ordinary families — especially those reliant on gas and oil heating — will face hundreds of euros in additional annual expenses.
Critics argue that ETS2 functions as a regressive carbon tax that hits lower- and middle-income households hardest long before affordable green alternatives are widely available.
ETS explained
The EU Emissions Trading System (ETS) is the European Union’s flagship climate policy tool.
It operates as a cap-and-trade system that puts a direct price on carbon emissions.
A declining cap is set on the total volume of greenhouse gases that covered sectors are allowed to emit each year.
Companies must hold one emission allowance for every tonne of CO₂ they produce.
Those that emit more than their allocated allowances must buy extra ones from companies that emit less.
Because the overall cap tightens annually, carbon becomes progressively more expensive, theoretically incentivising reductions in emissions.
There are currently two separate systems: The original ETS1, which covers large industry, power generation and aviation, and the new ETS2, which will apply to road transport fuels and buildings (heating) from 2027/2028 onwards.
With current carbon allowance prices around €70–80 per tonne of CO₂, the ETS typically contributes €15–25 per MWh to wholesale electricity prices in fossil-fuel-dependent markets.
This represents roughly 20–37 per cent of the wholesale price in gas- and coal-heavy systems. For households, the ETS impact on final electricity bills ranges from 2.8 per cent to over 20 per cent depending on the country, with the EU average estimated at 4–5 per cent.
In high-carbon countries such as Poland, Bulgaria, or Germany, the effect is substantially larger.
Overall, the ETS has helped push European industrial and household electricity prices among the highest in the world, contributing to competitiveness concerns and higher living costs.
