The Council of the European Union and European Parliament reached a provisional agreement on October 20 to revise one part of the emissions-trading system’s market stability reserve. The deal must still be endorsed and formally adopted by both institutions before the new rule can take effect.

The reserve is intended to manage imbalances in the carbon market by absorbing excess emission allowances or releasing allowances when conditions warrant. The targeted amendment addresses the invalidation mechanism, which permanently removes allowances above a specified level rather than changing the overall design of the reserve.

Under the compromise, invalidation would continue but the threshold would rise to 700 million allowances from 400 million once the legislation is adopted. The institutions say a larger buffer could help respond to future market tightness and price volatility while retaining protection against excessive allowance surpluses.

More than three billion allowances have been invalidated since the mechanism began operating in 2023, according to the Council. A broader review of the emissions-trading system and reserve is still underway. The provisional agreement therefore settles a targeted issue, not the wider carbon-market review.