176. The market stability reserve (MSR) is a dynamic instrument that adjusts the number of emission allowances auctioned in EU carbon markets in order to preserve their phase-dependent emission caps. Specifically, when allowances in circulation are judged to be in excess of what is required to maintain the cap at a suitable level, allowances are “reserved” from auctions. The served allowances are held back until surplus emissions fall below a pre-determined threshold. Therefore, the market stability reserve (MSR) maintains the phase-dependent cap of the EU-ETS. With this structure, the European Commission anticipates that the MSR will manage the existing surplus of emissions allowances and enhance the resilience of the EU-ETS against external shocks by adjusting the supply of auctioned allowances. 177. Carattini, S., Carvalho, M., & Fankhauser, S. (2017). How to Make Carbon Taxes More Acceptable. Grantham Research Institute on Climate Change and the Environment, and Centre for Climate Change Economics and Policy, London School of Economics and Political Science. https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2017/11/How-to- make-carbon-taxes-more-acceptable.pdf. 178. Becker, G. M., Degroot, M. H., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Behavioral Science, 9(3), 226-232. https://doi.org/https://doi.org/10.1002/bs.3830090304. 179. Gosnell, G., & McCoy, D. (2020). Market failures and willingness-to-accept the smart energy transition: Experimental evidence from the UK. Grantham Research Institute on Climate Change and the Environment. https://www.lse.ac.uk/ granthaminstitute/publication/market-failures-and-willingness-to-accept-the-smart-energy-transition-experimental- evidence-from-the-uk/. Bridging the Gap: How to Finance the Net-Zero Transition 38

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