Emissions Trading Scheme (ETS)

An Emissions Trading Scheme (ETS) is a market-based approach to reduce pollution, especially greenhouse gases. Governments set a limit (cap) on total emissions allowed from certain industries. They then allocate or sell permits (carbon credits) that grant the right to emit a specific amount. Companies can buy or sell these permits, incentivizing them to reduce emissions: if they cut pollution, they can sell extra permits for profit; if they need more, they must buy permits. This creates a financial motivation for industries to emit less, helping to lower overall pollution efficiently.