The Market Stability Reserve (MSR) aims to provide carbon price stability for the EU emissions trading system (EU ETS). But serious questions are being asked about how much stability – if any – it provides, say Michael Pahle and Simon Quemin. They argue that the MSR rules are too complex, have difficulty accommodating changing EU and national policies, and can cause regulatory uncertainty as well as market speculation. The authors recommend a reform of its core design – focussing on prices, not quantities of carbon allowances – instead of adjustments that make it even more complex and vulnerable to its existing weaknesses.
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