EU Emissions Trading System (EU ETS)

The EU Emissions Trading System (EU ETS) is a market-based approach to reducing greenhouse gas emissions. It sets a cap on the total emissions allowed from industries like power and manufacturing, and issues allowances (permits) that companies need to emit a certain amount. Companies can buy or sell these allowances, incentivizing them to reduce emissions efficiently—if they cut emissions below their allowance, they can sell excess permits; if they need more, they buy them. This creates financial motivation for emissions reductions, encouraging cleaner technologies and lower overall pollution within the EU.