Structural Supply Side Management in EU ETS

Reviewing the Market Stability Reserve

The review of the market stability reserve (MSR) is one of the key elements of the forthcoming reform of the EU ETS. This report assesses if the MSR is designed in a way that it can fulfil its pur-pose to provide sufficient supply-side flexibility under the cap. The authors discuss different op-tions for adapting and complementing the MSR parameters, such as the intake rate and thresholds for interventions, and how to increase the speed of the MSR response including the pros and cons of introducing a hybrid system with price and quantity-based triggers. Preferable reforms to key elements of the MSR are proposed and assessed against the current and an enhanced cap architec-ture that might be agreed following the adoption of EU’s more ambitious emission reduction target for 2030.