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European Emissions Trading Scheme

The European Emissions Trading Scheme (EU ETS) is a cornerstone of the European Union’s policy to combat climate change and a key tool for reducing industrial greenhouse gas emissions in a cost-effective manner. Established in 2005, it is the first large emissions trading system in the world and remains the biggest one. The EU ETS operates on a “cap and trade” principle.

Under this system, a cap is set on the total amount of certain greenhouse gases that can be emitted by facilities covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. Each allowance gives the holder the right to emit one tonne of carbon dioxide (CO2), or the equivalent amount of another greenhouse gas.

If a company emits more than its allocation of allowances, it must purchase allowances from other companies that have managed to emit less and have allowances to spare. Conversely, a company that takes measures to reduce its emissions can sell its excess allowances. This market-based approach is designed to find the most cost-effective ways to reduce emissions without significant government intervention.

The scheme covers more than 11,000 power stations and industrial plants across the 27 EU countries, as well as airlines. Sectors included are power generation, manufacturing industries, and commercial aviation (flights within the EEA). The EU ETS is meant to incentivize companies to invest in low-carbon technologies by increasing the cost of emitting carbon.

For further information about the European Emissions Trading Scheme, you can visit:

1. The European Commission’s page on the EU ETS, which provides an overview of the system, relevant legislation, and how it works:


2. The EU ETS Handbook prepared by the International Carbon Action Partnership (ICAP) offers a comprehensive guide to the system including its design, functioning and effect on reducing emissions:


Please note that the availability of these websites may change over time, and you should check to ensure that the links remain active when accessed.

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