Can the Market Stability Reserve Stabilise the EU ETS: Commentators Hedge Their Bets

In response to an imbalance between the demand and supply of permits within the European Union Emissions Trading System (EU ETS), the European Commission has proposed the introduction of a Market Stability Reserve (MSR). The MSR represents a quantity based automatic adjustment mechanism, which is designed to tackle the current surplus and introduce a degree of flexibility, allowing the system to respond to future demand side shocks. While some positive features of the MSR have been highlighted, the design, effectiveness and institutional setting have also come under criticism.