ETS2 in the European Parliament: tightening ahead, but the bigger battle may lie elsewhere

The European Parliament’s amendment process on the ETS2 MSR file reveals that the centre coalition is converging on technical Market Stability Reserve (MSR) amendments that tighten rather than loosen the Commission’s proposals. Outright repeal, postponement and hard price caps are unlikely to pass, while Social Climate Fund earmarking and social safeguard language enjoy broad majority support. The more significant uncertainty lies beyond the immediate file: by directly linking ETS2 to the ETS Directive review, the draft report risks turning ETS2 into a bargaining chip in a much wider political negotiation. Two end-states remain plausible: ETS2 launches in 2028 largely as proposed, or it is drawn into the Directive review, where more fundamental changes emerge as part of an integrated ETS1 and ETS2 compromise.