Preparing the review of the Market Stability Reserve

Date: 18 November 2019

Author(s): Andrei Marcu, Jean-Yves Caneill and Federico Cecchetti

The Market Stability Reserve (MSR) Decision was adopted in 2015, with the goal of providing a long-term solution to what was referred to as the supply-demand imbalance in the European Union (EU) Emissions Trading System (ETS). The MSR works as a volume-based instrument and its main function is to provide flexibility on the supply side of the EU ETS, by adjusting the supply of allowances to be auctioned.

The MSR became operational in 2019, and its first review is scheduled in 2021. This review should include two elements: i) the track-record of the MSR; ii) the future impacts of the Reserve. The decision whether to change the MSR parameters or not, and if so, how, will need to be based on this analysis, as well as a discussion on what the MSR ought to achieve.

This report aims to promote a debate on:

  • The components of the MSR review,
  • The structure of the review,
  • The parameters and data that should be monitored, leading to the 2021 scheduled review.

The ideas developed in this report build on a series of meetings and discussions organised by ERCST with stakeholders in 2018 and 2019. ERCST’s work on the MSR should be considered as an ongoing effort, which will need constant updates towards 2021, to reflect both political and market developments.