By Simon Quemin and Raphaël Trotignon
Regulatory changes are on the horizon to align the EU carbon market with the EU’s Paris commitments, the goals of the upcoming European Green Deal (e.g. carbon neutrality by 2050), and the achievements of other pieces of the climate and energy policy landscape which were recently – or are about to be – reinforced. Discussions in Brussels on raising ambition within the carbon market revolve around a more stringent cap trajectory (LRF increase) and a revision of the Market Stability Reserve (MSR) and its parameters. These elements are not independent, and their interaction need be considered. With our simulation model we evaluate and quantify various options for 2021 review package.