The European Commission’s proposal for a Market Stability Reserve published on 22 January 2014 aims to create more price stability in the EU Emissions Trading System (EU ETS) from 2021 onwards. Under the proposal, EU ETS allowances would automatically be put into the Market Stability Reserve when there is a large oversupply of emission allowances and released back into the market when allowances are scarcer.
The Market Stability Reserve is a necessary but insufficient step towards the structural reforms needed to turn the EU ETS into an effective instrument that encourages clean investments and controls emissions. Deeper reforms of the EU ETS are required, and these should be part of the legislative proposals following the European Council conclusions on the 2030 framework that were adopted in October 2014. However, this should not distract from the important task of starting a Market Stability Reserve as soon as possible so that it can help stabilise prices and send an adequate price signal.
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