EU Emission Trading System (EU ETS)

The EU Emission Trading System (EU ETS) is a market-based approach to reducing greenhouse gas emissions. It sets a cap on total emissions from industries like power plants and manufacturing, and issues a limited number of carbon allowances. Companies can buy and sell these allowances, encouraging them to innovate and cut emissions efficiently. If they emit less than their allowances, they can sell surplus; if more, they must buy additional permits. The system incentivizes overall emission reductions by making it more expensive to pollute beyond set limits, supporting Europe's climate goals.