European Union Emission Trading Scheme (EU ETS)

The European Union Emissions Trading Scheme (EU ETS) is a market-based system that aims to reduce industrial greenhouse gas emissions. It works by setting a cap on total emissions and dividing it into allowances, each representing the right to emit a certain amount of CO2. Companies must hold enough allowances to cover their emissions; they can buy or sell allowances, creating a financial incentive to cut pollution. Over time, the cap decreases, encouraging cleaner practices. The EU ETS thus promotes cost-effective emission reductions while supporting the EU’s climate goals.