Under the EU emissions trading system (ETS) as it currently operates all allowances held in the reserve above a threshold of 400 million are cancelled. The Commission has proposed to end this invalidation mechanism, allowing the allowances to be kept as a buffer to support market stability.
To ensure the orderly functioning of the European carbon market and the MSR, increase long-term market predictability, and contribute to and align with the EU’s 2040 and 2050 climate targets, MEPs are proposing keeping the invalidation mechanism but raising its threshold from 1 February 2027 from 400 to 650 million allowances. This would maintain a sufficiently large buffer to absorb supply and demand imbalances, while avoiding the possible excessive build-up of allowances in the reserve that could occur under the Commission’s proposal.
Plenary backed the changes by 367 votes to 240, and with 59 abstentions. Parliament is now ready to start negotiations with Council on the final text.
Rapporteur Pierfrancesco Maran (S&D, IT) said: “Today’s vote strikes the right balance between climate ambition and industrial competitiveness. Raising the invalidation threshold and setting a clear date for entry into force gives the MSR the necessary flexibility while safeguarding the EU ETS. The agreement supported by a broad majority sets the scene for the ETS revision, proving that ambitious climate and industrial policies can go hand in hand."
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