European Union Emissions Trading Scheme (EU ETS)

The European Union Emissions Trading Scheme (EU ETS) is a market-based system where companies are allotted a limit on their greenhouse gas emissions. Companies can buy or sell emission allowances within this cap, incentivizing them to reduce emissions efficiently. If they emit less than their allowance, they can sell the surplus; if more, they need to purchase additional allowances. This creates a financial motivation to cut emissions, helping the EU meet its climate goals by encouraging innovation and cleaner practices across industries like energy, manufacturing, and aviation.