BRUSSELS, April 1 (Xinhua) -- The European Commission on Wednesday proposed ending the automatic cancellation of excess allowances in the European Union (EU) carbon market's reserve system amid energy price spikes linked to the conflict in the Middle East.
The change targets the EU Emissions Trading System (ETS)'s Market Stability Reserve (MSR), according to a press release.
Under the ETS, power producers and heavy industry must buy carbon allowances to cover their emissions, meaning higher carbon prices can directly increase electricity and production costs. When allowance prices rise sharply, these costs are often passed on to consumers, adding to broader energy price volatility.
The MSR acts as a buffer by absorbing surplus allowances when supply is high and releasing them when supply is tight. However, under the current rules, all allowances in the reserve above 400 million are automatically cancelled, permanently reducing supply.
The Commission now proposes keeping those excess allowances in the reserve rather than cancelling them, preserving more spare allowances that could be released in times of market stress, aiming to help prevent sharp increases in carbon prices and thereby limiting additional upward pressure on energy costs.
The move comes as higher energy prices have heightened concerns about cost volatility. Energy Commissioner Dan Jorgensen said Tuesday that since the conflict in the Middle East began, gas prices in the EU have risen by around 70 percent and oil prices by about 50 percent.
The proposal will now go to the European Parliament and EU member states for negotiations. A broader review of the emissions trading system is due in July 2026. ■
