European Union Emission Trading System (EU ETS)

The European Union Emission Trading System (EU ETS) is a market-based approach aimed at reducing greenhouse gas emissions. It sets a cap on total emissions from power plants and industrial facilities, allowing companies to buy and sell permits to emit a certain amount of carbon dioxide. Companies that reduce their emissions can sell their excess permits to those who exceed their limits, creating a financial incentive to cut emissions. This system encourages innovation and investment in cleaner technologies, contributing to the EU's overall goal of climate change mitigation and achieving emission reduction targets.