EU ETS MSR review: flexibility is the magic word

The Market Stability Reserve (MSR) was implemented to reduce the oversupply in the EU’s Emission Trading System (EU ETS) and prevent such an oversupply from building up again. As a part of the ETS Directive review scheduled for 2026, the MSR may be a necessary tool to add the necessary flexibility to bridge the gap between emission reduction ambition and a net-negative ETS.

Veyt’s modelling demonstrates that the MSR design critically determines allowances supply dynamics, price volatility, and market resilience through 2040. Scenario testing reveals that earlier, more graduated MSR release resulting from a dynamic release function, coupled with a REPowerEU-adjusted MSR maximum volume, results in significantly higher EUA price stability.

Tomorrow (29 October), Veyt will present a white paper at the European Roundtable for Climate Change and Sustainable Transition (ERCST), describing an array of MSR design scenarios. Read the full analysis at the following link and register for the event at this link.