European Union Emission Trading System (EU ETS)
Carbon emission trading, also known as a cap-and-trade system, is an economic strategy aimed at incentivizing organizations to reduce their greenhouse gas emissions.
Under this system, each organization is given a cap on the amount of emissions they are allowed to produce. Those with surplus allowances can then trade them with companies that need more allowance for financial incentives. This allows the government to control carbon goals, while efficiently encouraging companies to pollute less.
The European Union Emission Trading System (EU ETS) is the largest emission trading scheme in the world, covering all 27 members of the European Union. It operates on the same basis as other cap-and-trade systems, where companies under the ETS can trade their allowances cross-border privately or through climate markets.
Since its launch in 2005, the EU ETS has resulted in progressive changes. A study in 2020 suggested that it helped reduce more than 1 billion tons of carbon emissions between 2008 and 2016. This is equivalent to 3.8 percent of EU overall emissions. The current goal for 2030 is to reduce net emissions by at least 55 percent compared to 1990.
Over the years, the scheme has gone through substantial amendments. Phase 1 started with only CO2 emissions from power generators and energy-intensive industries, before progressively expanding to cover more industries and other greenhouse gases.
As time progresses, governments will continue to maintain vigilant oversight of the ETS market to determine suitable modifications to the scheme.
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