Germany's Federal Environment Agency (Umweltbundesamt, UBA) published an analysis in March 2026 on reform of the EU ETS 2 Market Stability Reserve (MSR). The 33-page study was prepared by Veyt and The Climate Desk under the formal reference Climate Change 15/2026, and was announced by the German Emissions Trading Authority (DEHSt) on March 25, 2026.
EU ETS 2 covers CO2 emissions from fuel combustion in buildings and transport, and the MSR is the mechanism that adjusts how many allowances circulate in that market. Amid ongoing reform debate, this study delivers a quantitative conclusion: trying to stabilize the price comes at the cost of the cap's credibility.
Seven options across four indicators
The study used Veyt's EU ETS 2 market model to compare seven reform options under discussion. Four indicators were used for evaluation.
TNAC (total number of allowances in circulation)
The total volume of allowances circulating in the market. A core indicator, since it drives the MSR's trigger conditions.
Allowance price
The trading price of allowances, which translates directly into the carbon cost operators face.
Annual MSR intake and release
Volumes released from the reserve into the market and absorbed back from it, measuring how effectively supply is adjusted.
System-wide CO₂ emissions
The environmental purpose of the scheme itself—what happens to emissions as a result of lower prices.
These four indicators serve as the key KPIs for monitoring the EU ETS 2 market mechanism. The analysis was carried out under project number FKZ 37K2 44 108 0.
The conclusion: loosen it and prices fall—but emissions rise
The study's central finding is unambiguous. The more generous the MSR release, or the longer it is extended, the lower the price falls. Lower prices ease the burden on operators, but they also increase allowance supply and cumulative emissions. The result is erosion of the emissions cap's environmental integrity.
The study frames this as a quantitatively confirmed conflict of objectives. Which to prioritize—price stability or target alignment—is a policy judgment, and no design maximizes both simultaneously.
The study further concludes that if MSR loosening leaves a shortfall in reductions inside the ETS, meeting the existing reduction targets for buildings and transport will require strengthening climate policy outside the ETS. The ETS alone will not deliver the targets.
What this implies in practice
The practical significance is that estimating regulatory cost from carbon price forecasts alone will be wrong. Even if MSR loosening pushes prices down, that does not mean regulatory pressure eases. As long as reduction targets stay fixed, whatever the ETS fails to capture is likely to reappear through other policy instruments—tighter fuel-economy and insulation standards, redesigned subsidies, individual regulations.
For businesses touching buildings and transport, the policy mix as a whole needs to be tracked alongside EUA price movements. This matters especially for those with EU operations or customers: even in a phase where prices fall, the compliance burden can rise through a different channel, and it is safer to plan for that.
It is also worth noting that this study comes from a German government agency. EU ETS reform is an area where member states hold divergent positions, and analyses published by national environmental authorities offer a read on which arguments that country will emphasize in negotiations.