In a move to placate polluting industries, the European Commission moved to expand a reserve of pollution permits designed to steady carbon prices when markets turn volatile.

The plan adopted on Wednesday (1 April) concerns the Market Stability Reserve, a buffer mechanism that can inject or absorb free pollution permits to keep carbon prices from swinging too wildly.

By allowing more permits to accumulate, the commission is signalling to carbon markets that it has the capacity to act, without actually releasing anything if permits are abundant. 

The goal is to “send a signal that we are serious about keeping prices stable,” a senior EU official told reporters on Wednesday. 

But critics were unimpressed. 

“This proposal is a bad April Fools’ joke. Whoever guts the emissions trading system now is punishing all the frontrunners who have invested billions in the transition,” said Green MEP Michael Bloss.

Upcoming review

The measure is the first of several steps ahead of a comprehensive review of the Emissions Trading System (ETS) due in July. 

Operational since 2005, ETS puts a price on industrial pollution by making companies pay for permits covering every tonne of CO2 they emit.

By the commission’s own estimates, emissions from the more than 10,000 installations covered by the system have fallen by 50 percent since its launch, including a 24-percent drop in 2023 and a further 11 percent in 2024.

It is “the cornerstone of our decarbonisation policy,” a senior EU official said Wednesday.

The picture is less rosy for manufacturing, largely due to the large number of free allowances in the system. Energy-intensive sectors have had 85 percent of their emissions covered by permits granted at no cost.

This protected industry margins in productive sectors, but it also removed financial pressure to clean up. As a result, emissions in these sectors fell by only 7 percent and 0.8 percent in 2023 and 2024, respectively.

Free allowances 

To bring these industries in line with climate targets, the EU decided in 2023 to phase out free allowances. 

Under existing rules, allowances above a 400m threshold are automatically scrapped, and some 3.2bn allowances have been removed in recent years.