European Union Emissions Trading System

The European Union Emissions Trading System (EU ETS) is a market-based approach to controlling carbon emissions. It sets a limit on the total amount of greenhouse gases that certain industries can emit, distributing "carbon allowances" to companies. Firms can buy or sell these allowances based on their emissions. If a company reduces its emissions, it can sell its extra allowances, incentivizing lower pollution. Conversely, those that exceed their limits must buy more allowances. This system encourages businesses to innovate and invest in cleaner technologies while helping the EU meet its climate goals.