EU raises carbon reserve cancellation threshold to 700 million allowances

The Council of the EU and the European Parliament reached a provisional agreement on October 20 to raise the market stability reserve invalidation threshold for EU carbon allowances from 400 million to 700 million, keeping the cancellation mechanism the Commission had proposed halting indefinitely.

Why it matters: A larger reserve buffer means fewer surplus allowances are permanently cancelled, which loosens future supply in the EU emissions trading system and is intended to shield industry from extreme price volatility as the overall emissions cap keeps falling into the mid-2030s.

Data as of Council of the EU press release, October 21, 2026, read in full, reporting the provisional agreement reached on October 20, 2026; the European Commission issued a matching welcome release. Figures are the co-legislators' own, from a single official publication, so this item is graded C. Developing item.

The Council of the EU and the European Parliament reached a provisional agreement on October 20 on a targeted amendment to the market stability reserve of the EU emissions trading system, raising the invalidation threshold from 400 million allowances to 700 million, with the higher threshold taking immediate effect once the proposal is formally adopted. The compromise keeps the invalidation mechanism in place, where the Commission had proposed halting it indefinitely, and more than 3 billion allowances have been invalidated since the mechanism began in 2023.

The Council said the larger reserve gives the system a bigger buffer for future market fluctuations and more capacity to release allowances against extreme price volatility as the emissions cap tightens after the mid-2030s, while a gradual decrease of the threshold is to be considered in the wider ETS review now under way. The provisional agreement still needs endorsement by both institutions before formal adoption after legal-linguistic revision.

EU raises carbon reserve cancellation threshold to 700 million allowances

Sources