European Union Emissions Trading System (EU ETS)

The European Union Emissions Trading System (EU ETS) is a market-based approach to reduce greenhouse gas emissions. It sets a cap on the total emissions allowed from certain industries, such as power generation and aviation. Companies receive or buy emission allowances, which permit them to emit a specific amount of carbon dioxide. If they emit less, they can sell their surplus allowances. This system encourages companies to reduce their emissions, as trading creates a financial incentive to pollute less. Overall, the EU ETS aims to combat climate change while promoting economic efficiency.