COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid Accompanying the document DECISION THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Decision (EU) 2015/1814 as regards the amount of allowances to be placed in the market stability reserve for the Union greenhouse gas emission trading scheme until 2030
Date: 2021-07-14
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, EU environmental policy, auction sale, environmental protection, greenhouse gas, pollution control measures, reduction of gas emissions, reserves

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 552 final  COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid Accompanying the document DECISION THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Decision (EU) 2015/1814 as regards the amount of allowances to be placed in the market stability reserve for the Union greenhouse gas emission trading scheme until 2030 {COM(2021) 571 final}  
 
 
Subsidiarity Grid 

1.  Can the Union act? What is the legal basis and competence of the Unions’ intended action? 

1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative? 

The legal basis for this proposal amending Decision (EU) 2015/1814 of the European Parliament and 
of  the  Council  is  Article  192  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  In 
accordance  with  Article  191  and  192(1)  TFEU,  the  European  Union  shall  contribute  to  the  pursuit, 
inter  alia,  of  the  following  objectives:  preserving,  protecting  and  improving  the  quality  of  the 
environment;  promoting  measures  at  international  level  to  deal  with  regional  or  worldwide 
environmental problems, and in particular combating climate change. 

The Decision established a market stability reserve (the MSR or the ‘reserve’) in 2018, to address the 
structural  imbalance  between  the  supply  of  and  demand  for  allowances  in  the  market  and  to 
improve  the  resilience  of  the  EU  Emissions  Trading  System  (ETS)  to  major  shocks.  The  reserve 
functions by triggering adjustments to the annual auction volumes.  

1.2 Is the Union competence represented by this Treaty  article exclusive, shared or supporting in 
nature? 

In the case of environment, the Union’s competence is shared. 

Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in 
Article  3  TFEU1.  It  is  the  specific  legal  basis  which  determines  whether  the  proposal  falls  under  the 
subsidiarity  control  mechanism.  Article  4  TFEU2  sets  out  the  areas  where  competence  is  shared 
between the Union and the Member States. Article 6 TFEU3 sets out the areas for which the Unions 
has competence only to support the actions of the Member States. 

2.  Subsidiarity Principle: Why should the EU act? 

2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24: 

-  Has there been a wide consultation before proposing the act? 
- 

Is  there  a  detailed  statement  with  qualitative  and,  where  possible,  quantitative  indicators 
allowing an appraisal of whether the action can best be achieved at Union level? 

In order to collect evidence and ensure greater transparency, the Commission first invited feedback 
on  an  inception  impact  assessment,  outlining  the  initial  considerations  and  policy  options  of  the 
revision5.  The  Commission  then  organised  an  online  public  consultation,  receiving  almost  500 

1 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E003&from=EN  
2 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E004&from=EN  
3 https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E006:EN:HTML  
4 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12016E/PRO/02&from=EN  
5 The inception impact assessment was open for feedback from 29 October 2020 to 26 November 2020 and 
received about 250 contributions. The outcome can be found on the following website: 
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12660-Updating-the-EU-Emissions-
Trading-System.  

1 

 
 
 
 
 
 
                                                           
replies6.  In  addition,  the  Commission  held  (virtual)  bilateral  and  multilateral  stakeholder  meetings, 
including  with  industry  representatives  across  different  sectors,  trade  unions,  non-governmental 
organisations  and  Member  States  and  participated  in  virtual  conferences.  Finally,  the  Commission 
instructed  a  contractor  to  organise  two  expert  workshops7  on  the  review  of  the  Market  Stability 
Reserve  (MSR).  The  results  of  the  consultation  activities  are  reported  in  the  impact  assessment 
accompanying  the  proposal  amending  Directive  2003/87/EC  establishing  a  system  for  greenhouse 
gas  emission  allowance  trading  within  the  Union  (ETS  Directive),  and  Decision  (EU)  2015/1814 
concerning the establishment and operation of a market stability reserve for the Union greenhouse 
gas emission trading scheme (MSR Decision).  

Articles 191 to 193 of the TFEU confirm and specify EU competencies in the area of climate change. 
Climate  change  is  a  trans-boundary  problem,  which  cannot  be  solved  by  national  or  local  action 
alone. Coordination of climate action must be taken at European level and, where possible, at global 
level. EU action is justified on grounds of subsidiarity as set out in Article 5 of the Treaty on European 
Union.  Since  1992,  the  European  Union  has  worked  to  develop  joint  solutions  and  drive  forward 
global  action  to  tackle  climate  change.  More  specifically,  action  at  EU  level  will  provide  for  cost 
effective  delivery  of  the  2030  and  long-term  emission  reduction  objectives  while  ensuring  fairness 
and environmental integrity.  

In  light  of  the  emission  reduction  target  for  2030,  and  in  the  perspective  of  the  climate  neutrality 
objective  to  be  achieved  by  2050,  stronger  EU  action  is  needed,  including  with  a  more  ambitious, 
well-functioning and resilient carbon market. 

The explanatory memorandum of the proposal, and the impact assessment under chapter 3, contain 
sections on the principle of subsidiarity.   

2.2 Does  the  explanatory  memorandum  (and  any  impact  assessment)  accompanying  the 
Commission’s  proposal  contain  an  adequate  justification  regarding  the  conformity  with  the 
principle of subsidiarity? 

Yes,  they  do.  The  explanatory  memorandum  (as  well  as  the  accompanying  impact  assessment) 
explain that climate change is by its very nature a trans-boundary challenge that cannot be solved by 
national  or  local  action  alone.  Coordinated  EU  action  can  effectively  supplement  and  reinforce 
national and local action and enhances climate action.  

Although initiatives at the national, regional and local level can create synergies, alone they will not 
be sufficient. On their own, individual Member States’ carbon markets would represent too small a 
market  to  achieve  the  same  level  of  results.  Therefore,  an  EU  wide  approach  is  needed  to  drive 
industry level changes and to create economies of scale. 

2.3 Based  on  the  answers  to  the  questions  below,  can  the  objectives  of  the  proposed  action  be 

achieved sufficiently by the Member States acting alone (necessity for EU action)? 

Article 3 of the MSR Decision tasks the Commission with reviewing the functioning of the MSR before 
1 January 2022, on the basis of an analysis of the orderly functioning of the European carbon market. 

6 This was open for 12 weeks from 13 November 2020 to 5 February 2021. The outcome can be found on the 
following website: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12660-Updating-
the-EU-Emissions-Trading-System/public-consultation.  
7 https://ec.europa.eu/clima/events/expert-workshop-market-stability-reserve_en, 
https://ec.europa.eu/clima/events/2nd-expert-workshop-market-stability-reserve_en.  

2 

 
 
 
 
                                                           
The review of these elements should be considered together with the effects for market stability of 
increasing  the  ambition  of  the  EU  ETS,  and  is  therefore  proposed  together  with  the  Proposal  for 
Directive of the European Parliament and the Council amending Directive 2003/87/EC establishing a 
system  for  greenhouse  gas  emission  allowance  trading  within  the  Union,  and  Decision  (EU) 
2015/1814  concerning  the  establishment  and  operation  of  a  market  stability  reserve  for  the  Union 
greenhouse gas emission trading scheme.  

Nevertheless, it is necessary to separately amend the MSR Decision to maintain the current rate of 
allowances to be placed in the reserve each year after 2023 (intake rate). If the intake rate reverts to 
12% after 2023, a potentially harmful surplus of allowances in the EU ETS may form. In addition, the 
rate of 24% after 2023 should be established as early as possible to ensure market predictability. This 
continuation of the 24% rate is necessary in the context of the proposal to increase the contribution 
of emissions trading in a manner commensurate with the overall EU emissions reduction target of at 
least  -55%  for  2030.  This  objective  cannot  be  achieved  by  the  Member  States  alone  as  it  requires 
cost-efficient  emissions  reductions  across  the  Union  and  increased  resources  that  can  only  be 
achieved through the  EU-level carbon market. The changes  to the EU ETS to increase ambition for 
2030, as well as the impact of external factors such as COVID-19 or national measures such as coal 
phase-outs,  mean  that  the  basic  rules  of  the  MSR  must  remain  fit  to  continue  tackling  structural 
supply-demand imbalances. 

(a)  Are  there  significant/appreciable  transnational/cross-border  aspects  to  the  problems  being 

tackled? Have these been quantified? 

Climate  change  is  a  trans-boundary  problem  and  both  international  and  EU  action  can  effectively 
complement and reinforce regional, national and local action. The European Climate Law8, as agreed 
by  the  co-legislators,  makes  the  EU’s  climate  neutrality  target  legally  binding,  and  raises  the  2030 
ambition by setting a target of at least 55% net emission reductions by 2030 compared to 1990. The 
ETS  covers  41%  of  the  EU's  greenhouse  gas  emissions.  The  environmental  contribution  of  the  ETS 
needs  to  be  increased  in  a  manner  commensurate  with  the  overall  EU  target  for  2030.  If  the 
legislation remains unchanged, sectors currently covered by the ETS would together achieve a 2030 
emission reduction of -51% compared to 2005 (see Section 5.1 of the impact assessment). This would 
be an insufficient contribution to an overall target of  -55% compared to 1990. The policy scenarios 
that  achieve  around  55%  reductions  project  a  cost-effective  contribution  of  the  sectors  currently 
covered by the ETS in the range of -62-63% compared to 2005. The MSR is essential for the orderly 
functioning of the European carbon market. 

(b)  Would national action or the absence of the EU level action conflict with core objectives of 

the Treaty9 or significantly damage the interests of other Member States? 

Urgent  economy-wide  emission  reductions  to  combat  climate  change  are  necessary  to  fulfil  the 
objectives  of  Article  192  TFUE,  of  preserving,  protecting  and  improving  the  quality  of  the 
environment, protecting human health, as well as to promote measures at international level to deal 
climate change. The absence of EU level action could lead to ‘environmental dumping’ between the 
Member States, where Member States compete for the least stringent climate change measures to 
benefit their own economies, damaging the internal market and weakening climate action. An urgent 
climate  transition  requires  a  high  degree  of  investments.  As  a  result,  foregoing  the  benefits  of 

8 Regulation (EU) 2021/... of the European Parliament and of the Council of ... establishing the framework for 
achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European 
Climate Law’) (OJ L ...). 
9 https://europa.eu/european-union/about-eu/eu-in-brief_en  

3 

 
 
 
                                                           
economies  of  scale  and  the  possibility  of  reducing  emissions  where  they  are  more  cost-effective, 
would result in a slower climate transition due to increased costs and less available funds. 

(c)  To  what  extent  do  Member  States  have  the  ability  or  possibility  to  enact  appropriate 

measures? 

Member States are able to act to reduce greenhouse gas emissions that are under the scope of the 
EU  ETS  through  other  policies  than  emission  limits  adopted  pursuant  to  Directive  2010/75/EU. 
However,  they  are  not  able  to  establish  an  EU-level  carbon  market.  In  particular,  national  action 
remains  important  in  the  areas  of  buildings  and  road  transport,  for  which  a  separate  EU  level 
emissions  trading  system  is  proposed  as  additional  economic  incentive  to  achieve  cost-effective 
emission reductions. 

(d)  How  does  the  problem  and  its  causes  (e.g.  negative  externalities,  spill-over  effects)  vary 

across the national, regional and local levels of the EU? 

The  effects  of  raising  the  contribution  of  emissions  trading  towards  a  higher  emissions  reduction 
target will not be felt equally across the EU, as their starting point in terms of the emissions in the 
sectors covered by the Directive are not the same. Some Member States will be more affected than 
others. Increasing the contribution of the ETS to achieve the revised target will require investments 
in  the  energy  systems  and  the  greening  of  industrial  processes  in  Member  States  where 
modernisation needs are already the highest. Regions and local communities in which employment is 
linked to fossil fuel production are impacted more significantly than others. Furthermore, there are 
distributional concerns within Member  States, as low-income households across the EU will bear a 
relatively  higher  burden  notably  in  terms  of  heating  fuel  expenses  compared  to  wealthier 
households.  Hence,  there  are  likely  to  be  different  distributional  issues  that  emerge  if  the  EU 
emissions  trading  is  expanded  to  new  sectors.  At  the  same  time,  there  will  be  also  positive  social 
impacts,  like  an  improvement  concerning  health  issues  linked  with  air  pollution.  In  addition, 
emissions trading generates auction revenues which can be used by Member States to address these 
problems, including if there were specific problems at regional or local level.  

(e)  Is the problem widespread across the EU or limited to a few Member States? 

The need to address climate change is widespread across the EU.  

(f)  Are Member States overstretched in achieving the objectives of the planned measure? 

The ETS Directive establishes a carbon market in the EU, without specific targets per Member State. 
Emission  reductions  take  place  where  they  are  most  cost-efficient.  Nevertheless,  the  ETS Directive 
includes measures to mitigate the distributional and social effects of the ETS explained in point 2.3(d) 
above, reinforced by the proposal. In addition, Decision (EU) 2015/1814 establishes a market stability 
reserve for the ETS with an intake until 2025 that is only based on the 90% regular auctioning shares, 
exempting  the  10%  solidarity  shares,  continued  in  the  ETS  Directive  proposal.  The  proposed  new 
Regulation on a social facility for climate action addresses the social impacts of carbon pricing in the 
new emissions trading system for buildings and road transport. 

(g)  How  do  the  views/preferred  courses  of  action  of  national,  regional  and  local  authorities 

differ across the EU? 

The ETS is widely supported across the Union. The different views or preferred courses of action do 
not relate to the use of the ETS in itself, but to aspects of its design. 

4 

 
 
 
2.4 Based  on  the  answer  to  the  questions  below,  can  the  objectives  of  the  proposed  action  be 
better achieved at Union level by reason of scale or effects of that action (EU added value)? 

The  objectives  of  the  proposed  action  be  better  achieved  at  Union  level  by  reason  of  the  cost-
efficiency  of  emissions  reductions,  coherence  of  EU  action,  preserved  functioning  of  the  internal 
market and strengthened EU position to foster global action on climate change. By extension, as the 
MSR is a tool for stability of the market established by the EU ETS Directive, its objective also cannot 
be sufficiently achieved by unilateral action by the Member States.  

(a)  Are there clear benefits from EU level action?  

Yes. The benefits from EU level actions relate to the economies of scale and improvement of the EU 
internal  market  explained  below.  In  addition,  EU  action  can  also  inspire  and  pave  the  way  for  the 
development of market based measures at global level, e.g. as regards the maritime transport within 
International  Maritime  Organisation.  EU  action  also  allows  the  EU  to  have  a  stronger  position 
internationally to apply a Carbon Border Adjustment Mechanism, which will be based on the ETS to 
ensure compliance with the World Trade Organisation rules.  

(b)  Are there economies of scale? Can the objectives be met more efficiently at EU level (larger 

benefits per unit cost)? Will the functioning of the internal market be improved? 

Yes.  As  a  carbon  market,  the  ETS  incentivises  emission  reductions  to  be  made  by  the  most  cost-
efficient solutions first across the activities it covers, achieving greater efficiency by virtue of its scale. 
Implementing  a  similar  measure  nationally  would  result  in  smaller,  fragmented  carbon  markets, 
risking distortions of competition and likely lead to higher overall abatement costs. The same  logic 
holds for the extension of carbon pricing to new sectors. 

Many  of  the  policy  elements  of  the  proposal  have  an  important  internal  market  dimension,  in 
particular  the  options  related  to  the  carbon  leakage  protection  and  the  low-carbon  funding 
mechanisms.  

(c)  What  are  the  benefits  in  replacing  different  national  policies  and  rules  with  a  more 

homogenous policy approach? 

The  benefits  of  a  more  homogenous  approach  are  highlighted  in  point  2.4(b)  above.  Emission 
reductions  take  place  where  they  are  most  cost-effective,  thus  reducing  the  overall  cost  of  the 
climate  transition  for  the  EU.  Emissions  reductions  also  take  place  without  distorting  the  internal 
market,  and  preventing  environmental  dumping.  As  highlighted  in  point  2.3(c)  above,  for  the  new 
ETS for buildings and road transport, the aim is not to replace but to complement national policies. 

(d)  Do the benefits  of  EU-level action outweigh the loss of competence  of the Member States 
and the  local and regional authorities (beyond the costs  and benefits of acting at national, 
regional and local levels)? 

The benefits of EU-level action outweigh the loss of competence of the Member States and the local 
and  regional  authorities,  because  reducing  greenhouse  gas  emissions  is  fundamentally  a  trans-
boundary  issue  that  requires  urgent  effective  action  at  the  largest  possible  scale.  The  EU,  as  a 
supranational organisation is well-placed to establish effective climate policy in the EU. Concretely, 
the  benefits  are  the  cost-efficiency  of  emissions  reductions,  coherent  EU  action,  preserved 
functioning of the internal market  and strengthened EU position to foster global action on climate 
change.  

(e)  Will there be improved legal clarity for those having to implement the legislation? 

5 

 
 
 
Yes.  

3.  Proportionality: How the EU should act 

3.1  Does  the  explanatory  memorandum  (and  any  impact  assessment)  accompanying  the 
Commission’s proposal contain an adequate justification regarding the proportionality of the 
proposal  and  a  statement  allowing  appraisal  of  the  compliance  of  the  proposal  with  the 
principle of proportionality? 

This  proposal  complies  with  the  proportionality  principle  because  it  does  not  go  beyond  what  is 
necessary  in  order  to  achieve  the  Union’s  objectives  of  reducing  greenhouse  gas  emissions  by 
establishing a well-functioning carbon market to reduce emissions in a cost-effective manner, while 
ensuring fairness and environmental integrity.   
The  European  Climate  Law  has  endorsed  an  overall  economy-wide  and  domestic  reduction  in 
greenhouse gas emissions of at least 55% below 1990 levels by 2030 and climate neutrality by 2050.  
All  options  analysed  for  the  strengthening  of  the  existing  ETS  are  based  on  the  already  existing 
instrument, the ETS Directive. The initiative is limited to ETS adjustment needs that are triggered by 
this increased emissions reduction target of at least 55%. 
The instrument of emissions trading ensures that additional costs for industry due to the increased 
level of ambition of the EU’s climate policies are expected to be kept to a minimum, given that the 
ETS incentivises emissions reduction by operators with the lowest  abatement costs. Moreover, the 
use  of  the  existing  instruments  minimises  any  additional  administrative  costs.  In  this  context,  the 
proposal to amend the MSR Decision does not extend the scope of EU action, as it only ensures that 
its  current  parameters  continue  to  work  as  they  currently  do  until  revised  in  the  context  of  the 
proposal to review the ETS.  

3.2 Based  on  the  answers  to  the  questions  below  and  information  available  from  any  impact 
assessment,  the  explanatory  memorandum  or  other  sources,  is  the  proposed  action  an 
appropriate way to achieve the intended objectives? 

The  proposal  is  the  appropriate  way  forward  to  ensure  that  the  intake  rate  of  the  MSR  does  not 
revert to 12% after 2023, preventing the formation of a potentially harmful surplus of allowances in 
the EU ETS.  

(a)  Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on 

their own, and where the Union can do better? 

Yes, the proposal is limited to continuing the intake rate of the market stability reserve of the EU ETS, 
which is implemented by the Commission, so it does not entail further limitations to Member States’ 
competences. 

(b)  Is  the  form  of  Union  action  (choice  of  instrument)  justified,  as  simple  as  possible,  and 
coherent with the satisfactory achievement of, and ensuring compliance with the objectives 
pursued  (e.g.  choice  between  regulation,  (framework)  directive,  recommendation,  or 
alternative regulatory methods such as co-legislation, etc.)? 

The objectives of this proposal can be  best pursued through a Decision. The MSR is an existing EU 
policy  instrument  adopted  in  2015.  A  Decision  is  the  appropriate  instrument  for  this  single 
amendment to the Decision establishing the MSR.  

(c)  Does the Union action leave as much scope for national decision as possible while achieving 
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum 
standards or use a less stringent policy instrument or approach?) 

6 

 
 
Yes. 

(d)  Does  the 

initiative  create  financial  or  administrative  cost  for  the  Union,  national 
governments,  regional or local authorities, economic operators or citizens? Are these costs 
commensurate with the objective to be achieved? 

The  EU  ETS  generates  significant  revenues  for  Member  States’  budgets.  Most  of  the  auctioning 
revenues  accrue  to  Member  States.  The  proposal  affects  national  budgets  and  administrations 
primarily because of this link.  
Maintaining  the  current  intake  rate  of  the  MSR  will  reduce  the  auction  volumes  of  the  Member 
States. However, this is expected to be compensated by the effect on the price of a reduced surplus 
of allowances. The direct impact on national budgets will also depend on to which extent revenues 
will be directed to EU own resources. In line with the inter-institutional agreement on the budgetary 
matters10, the Commission is proposing an own resource based on the EU ETS11. 
The  MSR  is  implemented  by  the  Commission,  so  it  entails  no  administrative  costs  for  national 
governments, regional or local authorities. In addition, extending the application of the intake rate of 
24%  will  not  create  further  administrative  burden  for  the  Union  because  it  implies  the  same 
administrative process as applying a 12% intake rate. 

(e)  While  respecting  the  Union  law,  have  special  circumstances  applying  in  individual  Member 

States been taken into account? 

Yes, see point 2.2.(f). 

10 
11 

OJ L 433I , 22.12.2020, p. 28–46. 
[…]. 

7