Background

The MSR is a volume-based instrument. If a lower threshold of a total number of allowances in circulation is achieved in the carbon market, allowances are taken out from the MSR and brought back into the carbon market, thus increasing the supply of allowances. Conversely, if an upper threshold is achieved, EU allowances are deducted from the quantity to be auctioned and sent to the MSR. Based on Article 1(5a) of Decision (EU) 2015/1814, allowances held in the reserve above 400 million allowances are no longer valid, meaning they cannot be re-used for adjusting supply in the carbon market. Since 2023, 3.2 billion allowances have been cancelled from the MSR due to the 'invalidation rule'.

European Commission proposal

The Commission proposes to remove the invalidation rule to enable additional allowances to enter the carbon market, thereby creating a liquidity buffer in case additional allowances are required to address a supply shortage.

European Parliament position

In Parliament, the Committee on the Environment, Climate and Food Safety (ENVI) is responsible for the file. On11 June 2026, the rapporteur tabled a draft report, which he presented during the ENVI committee meeting of 6 July. The rapporteur, who is also ENVI committee chair, suggested not to modify the Commission proposal at that stage, proposing instead to examine the Commission proposal amending the MSR alongside the broader Commission proposal to revise Directive 2003/87/EC on the EU ETS, which was subsequently tabled on 17 July. ENVI committee members were thus able to submit their amendments to the proposal to amend the MSR as regards ceasing the invalidation of allowances in light of the broader proposal of 17 July.

On 10 September, the ENVI committee adopted its final report. The report proposes increasing the threshold triggering the invalidation mechanism from 400 million to 650 million allowances – allowances above that would no longer be valid – and suggests that the new threshold take effect on 1 March 2027.

First-reading report: 2026/0085(COD); Committee responsible: ENVI; Rapporteur: Pierfrancesco Maran (S&D, Italy). For further information see our Legislative Train Schedule.