Scientific support to the review of the Market Stability Reserve in the context of the structural reform of the EU emissions trading system

The aim of the research project is to provide UBA/DEHSt and the BMWK with flexible advice between April 2021 and September 2024 on issues relating to the review of the Market Stability Reserve (MSR), including the impact on carbon leakage and other components of the “Fit-for-55 package”, in particular the Carbon Border Adjustment Mechanism (CBAM). This objective is achieved through the preparation and publication of a series of fact sheets, analyses and studies, as well as through the organization of workshops and participation in third-party events.

In July 2021, the European Commission published its proposals to make the EU Emissions Trading System and the MSR “fit for 55” - fit for achieving the target of reducing greenhouse gas emissions in the EU by 55% below 1990 levels by 2030. The proposals included a reduction in the cap both through an increase in the linear reduction factor and additional cap reductions in two specific years. Regarding the MSR, in addition to maintaining the withdrawal rate of 24% until 2030, the main proposal was to limit the maximum quantity of allowances in the MSR to 400 million. The proposals also included the introduction of a CBAM. These proposals were subsequently discussed in a trilogue between the Commission, the European Parliament and the Council. In December 2022, political agreement was reached on the amendments to the Emissions Trading Directive and the CBAM Regulation, which were published in May 2023. In parallel to these adoptions, the Commission's “RePowerEU” activities advanced the European Union's efforts to strengthen energy independence. Revenues from the EU ETS contribute to the financing of the RePowerEU package.

Central studies in the project investigate the interactions of various proposals in the trilogue negotiations on the Fit-for-55 package in relation to the cap reduction, as well as key options for the amendment of the MSR. This also included analyses of the interactions of these two design issues with various approaches discussed at the time for the provision of funds for the RePowerEU package.

In the area of CBAM, quantitative data analyses and interviews were used to examine, firstly, cost and export shares of the most important CBAM sectors and, secondly, cost shares and impacts in downstream sectors that use the CBAM goods steel and aluminum as an input to production.