Emission Trading Systems (ETS)

An Emission Trading System (ETS) is a market-based approach to reducing greenhouse gases. It sets a limit, or cap, on the total emissions allowed from certain industries. Permits or allowances are distributed or auctioned, each permitting a specific amount of pollution. Companies can buy or sell these allowances; those that reduce their emissions can sell surplus allowances, while others may need to buy more. This creates an economic incentive to pollute less, encouraging innovation and cleaner practices. Overall, ETS aims to lower overall emissions cost-effectively by leveraging market mechanisms.