Stationary Mean Field Model for Carbon Market Stability Reserves

This study models the design of carbon market stability reserves as a stationary mean field singular control problem, where the optimal policy is a mechanism-dependent interval rule with four reflection thresholds. Thresholds calibrated to the EU ETS are comparable in magnitude to existing market stability reserve rules, with volatility being the primary determinant of intervention intervals. A dual-threshold policy based on average mechanism dynamics can closely replicate the optimal mechanism-dependent policy in terms of liquidity and intervention scale.