MSR ‘Speedy Gonzales’ review and free allocation

The European Commission will address carbon cost concerns raised by policy makers and industry and will present free allocation benchmark updates and changes to the market stability reserve within days. Changes to the benchmarks were highly expected, as was the prospect that the Market Stability Reserve (MSR) will be changed. That the, Commission will present changes to the MSR already in the days ahead was the most significant surprise coming out of the European Council meeting. The speed of the MSR proposals might mean that the Commission is aiming to implement MSR changes ahead of the next adjustment cycle starting 1 September 2026 for the change to have a short-term effect. To keep such an ambitious timeline, we expect the proposal to be rather uncontroversial and would likely suggest a change to the intake rate from 24% to 12%.