EU governments have rejected the Commission’s plan to end surplus carbon-permit cancellations permanently. Their greener compromise would suspend them only until 2030, then bring them back at a higher threshold.
EU ambassadors adopted the Council’s negotiating position on Wednesday, opening the way for negotiations with the European Parliament. The position is more environmentally restrictive than the Commission’s April proposal, which would have abolished cancellations permanently.
Member states instead favour suspending cancellations until the end of 2030 and raising the threshold when they resume in 2031. Their compromise would nevertheless preserve considerably more allowances than either the current rules or Parliament’s position.
We are protecting the integrity of the EU carbon market while giving businesses the predictability they need to decarbonise. — Darragh O’Brien, Irish Climate and Energy Minister
“We are protecting the integrity of the EU carbon market while giving businesses the predictability they need to decarbonise,” Irish Climate and Energy Minister Darragh O’Brien said.
More permits will survive, but remain outside the market
The Market Stability Reserve is designed to keep supply and demand balanced in the EU carbon market. It removes allowances from auctions when too many are circulating and can release them when the market becomes too tight.
The cancellation mechanism prevents the reserve from accumulating allowances indefinitely. Under current rules, permits held above its 400-million threshold are permanently removed. More than three billion allowances have been cancelled since 2023, helping restore the balance between supply and demand, according to the Council.
The Council now wants to suspend further cancellations until the end of 2030. From January 2031, cancellations would resume, but only when the reserve exceeds a new threshold of 800 million allowances.
Carbon prices may not fall immediately
Preserving the allowances does not mean that companies will immediately receive more permits. They would remain unavailable unless market conditions triggered their release. The larger stock would instead give the EU more capacity to respond as the declining emissions cap tightens supply and increases the risk of future price spikes.
The measure applies to ETS1, covering electricity generation, heavy industry, aviation and maritime transport. Consumers do not buy the allowances themselves, but carbon prices can feed into electricity bills and the cost of carbon-intensive products.
The European Parliament wants a different compromise. As EU Perspectives previously reported, MEPs support continuing cancellations while raising the threshold from 400 million to 650 million allowances in 2027.
Negotiations will now determine how many surplus permits the EU keeps and how quickly cancellations resume. The Council hopes to reach a final agreement with Parliament before the end of 2026.
