The Market Stability Reserve – a fading star?

The Market Stability Reserve mechanism has been a crucial tool to tackle historic market surplus and help bring the European carbon market into a state of balance. It was also a key trigger behind the past year’s carbon price journey. With the fit for 55 review, the mechanism is further strengthened and will continue to be active for the better part of this decade, however entering the buffer operation state already next year. The REPowerEU program, frontloading EUAs to accelerate power sector decarbonization, extends the operation of the MSR and leads to a de facto tightening of the market balance of 195 Mt. As supply-demand balances are restored, the role of the mechanism will fade. With the MSR in a dormant state, the buffer against sudden demand shocks will be gone.