On 25 June 2025, 16 EU member states released a non-paper to request that the European Commission assess various options for a reform of ETS2, the new emissions trading system for buildings and road transport beginning in 2027. The involved member states are concerned about the risk of high or volatile ETS2 prices and also express uncertainty about the initial price level.

While the risk of high prices can be managed without reform of the ETS2, the proposed revisions include proposals that would weaken the ETS2 and lower climate ambition through reform of the market stability reserve (MSR2).

This brief explainer outlines the rationale for the five different measures discussed by the non-paper, and also highlights the risks such changes will create in terms of generating higher emissions and the dangers politically of opening up different legislative instruments. The three main legislative instruments which could be reopened to make the below changes to the ETS2 are the Market Stability Reserve decision which establishes an MSR in ETS1 and ‘MSR2’ in ETS2, the ETS directive, the basis of ETS1 and ETS2 and the auctioning regulation which sets out the rules for the buying and selling of EUAs.