In a move aimed at reinforcing the stability and credibility of its Emissions Trading System (EU ETS), the European Commission has announced that 275,531,900 emission allowances will be withheld from auction and placed in the Market Stability Reserve (MSR) between September 2025 and August 2026. This follows the publication of the Total Number of Allowances in Circulation (TNAC) for 2024, which stood at 1,148,049,585 allowances.
The TNAC is a critical indicator used to assess whether the carbon market is oversupplied. If the TNAC exceeds 833 million allowances, the MSR is triggered to absorb part of the surplus, with the goal of preventing a drop in allowance prices that could undermine the incentive to decarbonize. This year’s figure far surpasses that threshold, activating the maximum intake rate of 24%.
A Mechanism for Market Balance
Established in 2015 and operational since 2019, the MSR is designed to counteract imbalances between supply and demand in the EU ETS. According to the MSR Decision (EU 2015/1814), if the TNAC exceeds 1,096 million, as it does in 2024, the system withdraws 24% of the surplus from upcoming auctions.
The withheld allowances will be redistributed across all EU Member States, as well as Iceland, Liechtenstein, Norway, and Northern Ireland, based on each country’s respective auction share. These changes will be reflected in the updated auction calendars expected in July 2025.
Automatic Invalidation
An important reinforcement to the MSR came into force in 2023: any allowances in the MSR exceeding 400 million at the beginning of the year are automatically invalidated. On January 1, 2025, a total of 270,506,086 allowances were permanently removed from the system, helping to tighten supply and boost market confidence.
Growing Scope of the EU ETS
The TNAC calculation now includes verified emissions and allocated allowances from both aviation and, for the first time in 2024, maritime shipping. This broader scope reflects the EU’s commitment to covering more sectors under its carbon pricing regime as part of its Fit for 55 and Green Deal strategies.
Outlook
The next TNAC publication is scheduled for June 2026 and will determine the volume of allowances to be placed in or released from the MSR for the period from September 2026 to August 2027. As the EU continues to refine its carbon market mechanisms, the MSR remains a vital tool for maintaining a functional and credible emissions trading system that can support the bloc’s climate ambitions.