MEPs Vote to Keep Cancelling ETS Permits Through February, Rebuffing Commission Proposal
The Parliament's environment committee backed continued automatic MSR cancellations on September 10, pushing back against the Commission's plan to hold surplus allowances in reserve rather than extinguishing them.
The European Parliament's environment committee voted on Thursday (2026-09-10) to keep automatically cancelling surplus EU allowances held in the market stability reserve, at least through February, rejecting the timetable the European Commission had been pursuing to suspend those cancellations and hold the permits in reserve instead.7,5
The Commission made its case for change in May. On Wednesday (2026-05-20), it formally proposed suspending the MSR's automatic cancellation trigger, which activates when total allowances in circulation exceed 400 million, arguing that preserving those permits in reserve rather than extinguishing them permanently would give policymakers more flexibility to manage future supply shocks without reopening new auctions.1
MEPs on the committee disagreed, at least for now. The MSR's cancellation mechanism has functioned as the market's route to permanently removing structural surplus — each cancelled allowance is gone, and the expectation that excess supply is being eliminated has supported the long-run price argument for European carbon. Suspending cancellations would leave those allowances in procedural limbo, technically not cancelled and available for potential reintroduction, undermining the scarcity argument on which the long-run EUA price rests.5,1
The vote is not a permanent resolution. Montel reported the committee's backing extends only until February, which frames the coming months as an active legislative period rather than a settled one. A senior MEP had told Montel in June (2026-06-05) that full agreement could come in September if the process went smoothly. It did not go that smoothly.7,2
The committee's position needs full Parliament endorsement before it can constrain policy, after which trilogue negotiations with the Council and Commission would follow. The February date signals where the committee's patience for legislative delay ends, not a binding policy endpoint in itself.5
Running alongside the MSR debate is a broader ETS overhaul that complicates the supply picture further. A Reuters report from June (2026-06-10), based on an internal Commission document, showed the ETS review would extend free allowances to industrial firms in exchange for investment commitments in the EU. That arrangement reduces the volume of allowances heavy industry must purchase outright, which affects market demand independent of what happens to the cancellation mechanism.4
Critics have not been quiet about the implications. Andrea Spignoli of Bellona Europa told CarbonBrief in July (2026-07-20) the review risks "weakening green investments." The analysis also cited Escrig's view that the package amounts to "strengthening support for industrial investment while weakening parts of the framework meant to drive it." The MSR cancellation question and the free allowances extension are moving through the institutions in parallel, and the interaction between the two outcomes is unresolved.6
One distinct supply dynamic runs in the background. EEX confirmed it will stop conducting REPowerEU carbon auctions once the €20 billion fundraising target is reached, with the exchange's CEO telling Montel the endpoint is a firm cut-off rather than a rolling programme. The timing remains open, but cessation of those auctions removes a known source of incremental allowance supply and alters the market's supply-demand accounting from that point forward.3
ICE EUA Dec-rolling contracts carry two legislative unknowns through the fourth quarter: whether the full Parliament endorses the committee's position, and what the February timeline produces if it forces a harder confrontation between MEPs, the Council, and the Commission over a cancellation mechanism that has so far survived intact.7