European Union Emission Trading Scheme

The European Union Emissions Trading Scheme (EU ETS) is a market-based system that limits greenhouse gas emissions from industries. The EU sets a cap on total emissions and divides it into allowances, which companies can buy or sell. Each allowance permits a certain amount of emissions. Companies that reduce their emissions can sell extra allowances, earning revenue, while those exceeding their limits must buy allowances or face penalties. This incentivizes industries to lower emissions cost-effectively, promoting cleaner practices and helping the EU meet its climate goals.