Market Stability Reserve

A mechanism used in carbon emissions trading systems to address market imbalances and ensure price stability. It functions by adjusting the supply of emission allowances in response to changes in demand. When there is an oversupply of allowances, the MSR can withhold a portion of the allowances from the market to reduce excess supply. Conversely, it can release allowances back into the market when there is a shortage. The goal of the MSR is to stabilize the carbon market, enhance predictability, and support effective carbon pricing.