Dublin: The market stability reserve of the EU Emissions Trading System will keep more allowances before it cancels any, after Council and Parliament negotiators reached a provisional agreement on 20 October 2026. The deal raises the invalidation threshold from 400 million to 700 million allowances, and the Council confirmed the agreement the following day.

The change targets a specific rule. The market stability reserve absorbs surplus allowances or releases them to steady the carbon market, and above a set threshold it invalidates allowances for good. More than 3 billion allowances have been invalidated since the mechanism began in 2023, according to the announcement. A higher threshold means the reserve can hold a larger buffer before cancellation starts.

The Commission wanted to go further. Its proposal would have halted invalidation indefinitely, but the co-legislators kept the invalidation mechanism of the market stability reserve and raised the threshold instead. They describe the result as a balanced compromise. They also agreed that a gradual decrease of the threshold should be considered in the wider review of the trading system, although that idea is not a final decision.

The deal responds to political pressure over energy costs. The European Council conclusions of 19 March 2026 asked for a short-term measure to address high and volatile energy prices, and the Commission answered with this targeted amendment to Decision (EU) 2015/1814. Supporters say a larger buffer protects industry from extreme price swings and prepares the market for tighter supply after the mid-2030s, when the overall cap keeps falling.

Darragh O’Brien, Ireland’s minister for climate, energy and the environment, said the outcome is balanced and gives European industry immediate flexibility while ensuring price stability and protecting the integrity of the carbon market. Ireland holds the Council presidency and led the talks with Parliament. The Commission welcomed the agreement but called it only a first step towards a deeper modernisation of the market stability reserve.

That deeper reform of the market stability reserve already sits on the table. The Commission submitted a broader proposal on 17 July 2026, and the Council is still discussing it alongside the wider review. The announcement reports no carbon price figures, so readers should not treat the threshold change as a forecast for allowance prices, which depend on many other factors.

The agreement is provisional until both institutions endorse it and formally adopt the text after legal and linguistic revision. No dates for the Parliament vote or Council adoption have been published. Once adopted, the new threshold takes effect immediately, and traders, utilities and heavy industry will start to price in a market stability reserve that cancels fewer allowances.