The 2026 review of the EU Emissions Trading System (EU ETS), expected in July, is a key moment for shaping Europe’s future carbon market. For sectors represented by the European Shippers’ Council (ESC), including maritime transport, logistics, and freight-intensive industries, the direction of reform will have significant implications for cost stability, competitiveness, and investment planning.
A central question in this review is whether the Market Stability Reserve (MSR), the EU ETS’s supply adjustment mechanism, remains fit for purpose as the system transitions from a historical surplus toward structural scarcity.
The MSR, introduced in 2019, was designed to address oversupply in the carbon market. It operates by withdrawing allowances when the Total Number of Allowances in Circulation (TNAC) exceeds an upper threshold and releasing them when it falls below a lower threshold. This rule-based mechanism has contributed to a significant tightening of the market, with the TNAC falling to around 1.15 billion allowances and more than 2.5 billion allowances permanently cancelled, strengthening the carbon price signal.
However, the MSR was designed for a surplus environment. As the EU ETS tightens further, the TNAC becomes a less clear policy signal. It is backward-looking and may reflect both genuine scarcity and strategic banking behaviour, which can increase uncertainty in carbon price formation. This is particularly relevant for ESC members, who require predictable cost conditions for long-term logistics and supply chain decisions.
Alternative approaches, including price-based adjustment mechanisms, are increasingly discussed in academic literature and in other emissions trading systems. These mechanisms respond more directly to expectations of scarcity and may offer improved responsiveness and predictability.
The 2026 reform is not expected to fundamentally redesign the MSR. However, the transition toward a tighter carbon market raises broader questions about whether future EU ETS architecture should rely more on price signals rather than quantity-based indicators.
For European Shippers’ Council and its members, these design choices are critical to ensuring that climate ambition is delivered alongside stable, predictable, and competitive conditions for European logistics and trade.