Emission Trading Schemes (ETS)

An Emission Trading Scheme (ETS) is a market-based approach to controlling pollution, especially greenhouse gases. Governments set a cap on the total emissions allowed from certain industries and issue a limited number of pollution permits or allowances accordingly. Companies can buy or sell these permits, incentivizing them to reduce emissions—if they emit less, they can sell their extra allowances; if more, they must buy allowances. This creates a financial motivation to lower emissions, helping achieve environmental goals efficiently while allowing flexibility for businesses to find cost-effective solutions.