The Council of the European Union and the European Parliament have reached a provisional agreement to strengthen the Market Stability Reserve (MSR) for the EU emissions trading system covering buildings, road transport and additional sectors (ETS2), ahead of its full launch in 2028. The agreement backs the European Commission’s proposal to reinforce the existing safeguards designed to limit excessive carbon price volatility.
The price of carbon is the key variable that will determine the additional cost applied to fuels used in road transport and buildings under ETS2 from 2028.
While the system is intended to increase the relative cost of conventional fuels and encourage the uptake of cleaner alternatives, concerns remain about the impact of potentially volatile carbon prices during a transitional period in which many sectors, including road transport, will continue to rely heavily on conventional fuels.
The Commission’s proposal, now provisionally endorsed by the co-legislators, aims to improve market predictability and reduce the risk of sharp price spikes by strengthening the ETS2 Market Stability Reserve.
“A stable carbon market framework is essential for commercial road transport operators, which typically operate on extremely thin margins,” said IRU EU Advocacy Director Raluca Marian.
“Recent geopolitical events, including the escalation of tensions in the Middle East, have demonstrated how quickly energy markets can become volatile. Carbon price volatility under ETS2 could have similar consequences once the system becomes operational. We welcome the ongoing revision. ETS2 can only work if it creates predictable conditions for all parties concerned. It is in no one’s interest to destabilise transport markets,” she added.
Reducing volatility and increasing predictability in the carbon market are essential to ensure the system supports, rather than undermines, the sector’s transition. However, the revised mechanism remains a soft price-correction tool rather than a hard price cap. While the reinforced reserve should help dampen excessive price increases, it does not guarantee an upper limit for carbon prices. Greater certainty would still be desirable for operators making long-term investment decisions.
While the sector is steadily transitioning towards zero-emission vehicles and renewable fuels, more than 90% of the heavy-duty vehicle fleet still runs on diesel. Diesel is therefore expected to remain a major energy source in 2028, when ETS2 becomes fully operational. Strong market safeguards are essential to limit excessive volatility and avoid sudden carbon cost increases that could amplify fuel price shocks and undermine transport markets.
The agreed text removes MSR’s automatic post-2030 expiry date, ensuring that the reserve’s full capacity of 600 million allowances remains available to support market stability over the longer term.
It also strengthens the existing price-correction mechanism by doubling, from 40 million to 80 million, the maximum number of allowances that can be released annually if the carbon price exceeds EUR 45 per tonne of CO₂ equivalent (in 2020 prices, adjusted for inflation).
In addition, the agreement enables allowances to be released more responsively when the number of allowances in circulation falls below 260 million, compared to the current threshold of 210 million, helping reduce market uncertainty linked to abrupt supply changes.
But the proposal does not address another essential element: ETS2 revenues should be reinvested into practical decarbonisation measures for the sector.
The agreement reinforces the importance of using ETS2 auction revenues to support climate and energy transition measures in buildings and road transport, in line with existing EU rules. But it does not ensure that revenues generated by road transport are effectively reinvested in the sector’s decarbonisation solutions.
“We hope that the Commission will issue clear guidance encouraging Member States to dedicate a significant share of ETS2 revenues generated by road transport to the decarbonisation of the sector,” said Raluca Marian.
“Without that component, ETS2 risks being perceived as a punitive measure rather than a transition instrument. The green transition cannot be a one-way street where efforts are expected only from private operators without corresponding support for solutions,” she added.
The European Commission will review the functioning of ETS2 in 2031.
The provisional agreement now requires formal endorsement by both the Council and the Parliament following legal-linguistic revision. The amended MSR is expected to be in place ahead of the full launch of ETS2 in 2028.