The European carbon market saw another headline-driven and volatile session yesterday. EUA Dec’26 surged 3.2% after an article published by Bloomberg indicated that the EU may take a less aggressive approach to easing costs.

Although carbon allowance prices touched an intraday high of €73.97 on the news—the strongest level in nearly three weeks—the rally faded, with EUAs closing at €72.18, up 0.71% on the day and marking a third consecutive session of gains.

Carbon Pulse reported on Friday, citing officials familiar with the matter, that the European Commission is set to present proposed changes to the Market Stability Reserve this Wednesday, alongside updated benchmarks guiding the allocation of free CO₂ permits to industry.

According to a Bloomberg article published on Monday, the proposal to be presented on Wednesday will include scrapping the invalidation of certain permits within the Market Stability Reserve—a mechanism that regulates supply in the carbon market—while keeping volume thresholds and the absorption rate unchanged.

Current legislation stipulates that “at the start of each year, the MSR invalidates allowances in its holdings above a threshold of 400 million.” On 1 January 2025, the MSR invalidated 271 million allowances, leaving 400 million in the Reserve.

An additional 381 million allowances were invalidated on 1 January 2024, and 2.5 billion on 1 January 2023, bringing the cumulative total to 3.2 billion allowances. In the absence of this rule, these surplus volumes would have remained in the MSR, with the potential to return to the market.

However, “initial analysis suggests that removing the invalidation clause for future intake into the MSR in isolation is unlikely to materially depress EUA prices, with the broader impact dependent on accompanying policy adjustments,” BBVA analysts wrote on Monday morning.