Beyond price corridors: a rules-based way to relieve excessive carbon-price pressure without weakening the EU ETS

16 February 2026

Chair of Climate Finance Luca Taschini, and colleagues, argue in favour of a Carbon Cap Rule.

factory at night with bright lights, chimneys and smoke

Europe’s current debate about the EU ETS reflects a clear trade-off that many leaders are now making explicit: how to ease excessive cost pressure associated with high carbon prices while still protecting climate credibility and the emissions-reduction path. That’s a delicate balance. It also explains why ideas like explicit “price corridors” or hard caps keep resurfacing: they sound like a direct fix for price stress. But they are institutionally uncomfortable. A corridor can look overly interventionist and risks shifting the ETS away from its core logic—an emissions cap delivered through a market for allowances—towards a system defined by a headline price level that is liable to become the subject of repeated political renegotiation.

At the same time, the debate is implicitly recognising something important. If policymakers are looking for ways to avoid damaging price spikes and sustained pressure, they are acknowledging the need for supply management. The real choice is not “intervention versus no intervention.” The real choice is between ad hoc, discretionary intervention -- stepping in when pressure becomes politically unbearable -- and a rules-based framework that sets out in advance how supply responds to stress, with credibility safeguards built in.

In our recent paper, Weitzman Meets Taylor: EUA price drivers and carbon cap rules, Ghassane Benmir, Josselin Roman and Luca Taschini explore a rules-based approach that formalises the direction policymakers are already pointing to, but in a way that stays consistent with cap-and-trade logic. The proposal is a Carbon Cap Rule (CCR).

The CCR is simple in concept. When abatement becomes suddenly more expensive -- typically when the economy faces shocks that make reducing emissions harder -- carbon prices can jump sharply and create excessive short-term pressure. Under CCR, allowance supply can be adjusted in a transparent, pre-committed way that reduces the severity of these spikes. Crucially, CCR is not a one-way valve. If emissions outcomes later fall short of what the cap-and-trade pathway requires, the rule tightens back. That “tighten-back” feature is the integrity safeguard: it ensures that short-term pressure relief does not come at the expense of the environmental objective.

This design speaks directly to the concerns policymakers are voicing today.

First, to the concern that prices are too high and industry is under strain, CCR offers a way to reduce price spikes without tearing down the ETS or turning it into a price-managed regime. It avoids a blunt ceiling that invites repeated lobbying and political bargaining over "the right price number". Instead, it offers predictable guardrails that operate through allowance supply: the native instrument of the ETS.

Second, to the concern that an MSR-style tool is needed to modulate the system, CCR can be framed as making that intuition more explicit and legible. Rather than relying on vague commitments to “step in if needed,” CCR sets out in advance how supply would respond to stress, making the mechanism easier for firms and investors to understand and plan around. In practice, CCR can be communicated as a calibration principle for MSR intake and release: the same institutional architecture, but guided by abatement-cost-based rules rather than discretionary judgement.

Third, to the concern that reforms must not undermine climate ambition, CCR builds credibility into the rule itself. Any temporary easing is paired with a tightening mechanism when emissions outcomes are off track. The promise is not cheap allowances. The promise is predictable outcomes with the environmental objective protected by design.

The practical implementation and the political route are relatively straightforward. CCR does not require abandoning the ETS or rewriting it into a price corridor. It can be introduced as a rules-based approach to supply management using familiar instruments. The key design choices are governance choices: what indicators trigger adjustments, how strong the response is, how the tighten-back safeguard operates, and how those elements are published and reviewed so that discretion is limited and credibility is maintained.

If the political objective is to relieve excessive price pressure while preserving climate credibility, a rules-based Carbon Cap Rule offers a direct way to operationalise that objective without changing the core logic of cap-and-trade.