European Union emissions trading scheme (EU ETS)

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A cap and trade scheme where a limit is placed on the right to emit specified pollutants over defined areas in Europe and companies can trade emission rights within those areas. The EU ETS is a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions (GHGs) cost-effectively. It is the world’s first major carbon market and remains the biggest one.

The EU Emissions Trading System:

  • operates in all EU countries plus Iceland, Liechtenstein and Norway (EEA-EFTA states)
  • limits emissions from around 10,000 installations in the power sector and manufacturing industry, and from airlines operating between these countries
  • covers roughly 40% of the EU’s greenhouse gas emissions.

The legislative framework for the EU ETS is articulated in the EU ETS Directive.


EU Emissions Trading System (EU ETS)
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Union and amending Council Directive 96/61/EC