As debate over carbon market reform intensifies, the EU should consider a temporary safety valve for the Emissions Trading System (ETS). A limited release of future allowances, matched by high integrity international credits and not later reversed by the Market Stability Reserve, could ease near term pressure without weakening long term climate goals.
The ETS has helped put a price on carbon, improve efficiency and support emissions reductions across the sectors it covers.[1] But as the debate over carbon market reform gathers pace in Brussels, the context in which it operates has become more challenging. Policymakers are no longer focused only on emissions reduction, but also on competitiveness, resilience and affordability.
European manufacturers are operating under tighter margins, higher energy costs and greater geopolitical uncertainty, while the EU is under more pressure to show that decarbonisation can be reconciled with industrial resilience. This is particularly pertinent at a time when the energy supply outlook is uncertain. Hence, a system designed to tighten steadily over time may need more flexibility if it is to remain both effective and politically durable.
One response would be to bring some future allowance supply forward, back that move with high integrity international credits under Article 6 of the Paris Agreement, and ensure that the Market Stability Reserve does not later reverse the relief.
Higher carbon prices do not always produce better outcomes
A rising carbon price can be an efficient way to cut emissions where affordable alternatives are already available. It can encourage energy efficiency, reward fuel switching and steer investment towards lower carbon production.
But in sectors where the main low carbon options remain costly, technically difficult or not yet available at scale, a higher carbon price does not automatically produce faster decarbonisation – it can also squeeze margins, weaken investment appetite and increase the risk that production shifts outside Europe.
Climate policy should be judged by whether it lowers global emissions while preserving a viable industrial base. If production moves to jurisdictions with weaker climate rules or more carbon intensive output, Europe may look cleaner on paper without much benefit to the atmosphere.
This is the logic behind carbon leakage concerns and one of the reasons the EU has introduced the Carbon Border Adjustment Mechanism.[2] But CBAM alone does not settle the wider question now under debate in Europe: how should the ETS operate when industrial competitiveness has become a more central policy concern?
Timing matters
Part of the challenge is timing. The EU’s wider climate framework is evolving, and international carbon markets may play a larger role later in the next decade. But much of that flexibility still lies years ahead, while industrial pressure is already here.
The ETS was designed to tighten in a predictable way, but that may not be enough in a period of more volatile energy markets and weaker industrial confidence. Carbon market design cannot be treated in isolation from the wider energy and industrial backdrop.
With EU leaders pushing for carbon market reform options by July, policymakers should consider whether the system would benefit from a pressure relief mechanism.
A near term option exists
One option would be to auction a limited volume of future allowances earlier than planned in order to ease pressure in the market.
The principle is not without precedent. In 2023, the EU amended its framework to frontload ETS allowances to help finance REPowerEU, showing that the system can be used with some temporal flexibility when policymakers judge the circumstances to warrant it.[3]
The issue has become more immediate with the publication of Accelerate EU[4], which appears to point towards further use of frontloaded allowances, even if the market impact will depend heavily on where those allowances come from and how quickly they are brought to market.
A similar approach now would need to be carefully targeted to give the market some flexibility at a time when the wider industrial and political context has become more difficult.
How Article 6 could help
Article 6 of the Paris Agreement offers a credible basis for adding carefully designed flexibility to the EU ETS. It provides a framework for verified international emissions reductions, with rules intended to prevent double counting and protect environmental integrity.[5]
As that framework starts to take shape, it offers the EU a way to link any near term increase in allowance supply to real mitigation abroad. Used in this way, Article 6 would complement the ETS, helping to ease pressure on European industry while preserving climate credibility, supporting lower cost emissions reductions where they can be achieved most efficiently, and directing capital towards decarbonisation projects beyond Europe’s borders.
Article 6 began to move from principle into practice in early 2026, when the UN carbon market approved its first issuance of credits under the Paris Agreement, and the Commission’s 2040 climate framework already includes a role for high quality international credits later in the next decade.[6]
The Market Stability Reserve must not cancel out the effect
For any such mechanism to work, the effect of frontloading allowances would need to be protected from automatic reversal by the Market Stability Reserve.
If the additional near term supply were later withdrawn through the Reserve, much of the relief created by the policy would be lost.
A more flexible ETS could strengthen climate policy
The central issue is whether Europe can pursue climate ambition in a way that remains economically credible and politically sustainable as the external environment becomes more difficult.
An ETS seen as too rigid in a more contested industrial setting may become harder to defend. If companies and policymakers come to regard the carbon market as a source of strain with too little flexibility, the long term legitimacy of the system could weaken.
A carefully designed safety valve would not dilute the purpose of the ETS, but would help preserve it. By allowing flexibility, matched by high integrity international mitigation and protected from automatic reversal, the EU could show that carbon pricing remains compatible with industrial resilience as well as climate ambition.
The debate matters now; policymakers are considering how to make the ETS durable, at a time when Europe is rethinking the relationship between decarbonisation, competitiveness and economic security.
If the ETS is to remain central to Europe’s transition, it may need to become a little more adaptable to the realities around it.
[2] European Commission, 2026
[3] Official Journal of the European Union, 2023
[4] European Commission, 2026
[6] European Commission, 2025