The European Parliament and EU governments have provisionally agreed to raise the cap on allowances held in the Market Stability Reserve from 400 million to 700 million before excess allowances are permanently cancelled. The change is meant to limit price volatility and protect industrial competitiveness as emissions limits tighten. The deal keeps the cancellation mechanism, with a gradual reduction of the new threshold to be considered in a broader review of the EU carbon market. Formal approval from both institutions is still required. If adopted, the larger reserve gives the market a bigger buffer against supply shocks, but it also delays the point where surplus allowances are removed permanently.
