Emission Trading Scheme (ETS)

An Emission Trading Scheme (ETS), also called cap-and-trade, is a market-based system for reducing greenhouse gases. It sets a limit (cap) on total emissions allowed from specific industries. Companies receive or buy emission allowances, which give them the right to emit a certain amount. If a company emits less than its allowance, it can sell the unused permits to others. Conversely, companies exceeding their limits must buy additional allowances. This creates an economic incentive for companies to reduce emissions efficiently, encouraging innovation and cost-effective environmental responsibility across industries.