European Union Emissions Trading System
The European Union Emissions Trading System (EU ETS) is a carbon emission trading scheme (or cap and trade scheme) that began in 2005 and is intended to lower greenhouse gas emissions in the EU. Cap and trade schemes limit emissions of specified pollutants over an area and make polluters pay for their pollution, requiring them to buy allowances to emit enough to cover their emissions, from the EU or from other companies. The money is channeled to environmental and social goals. As of 2026 the ETS covers around 40% of the EU's greenhouse gas emissions. The cap decline gradually and should reach zero by 2039. After this year no more allowances will be distributed and when the unused allowances will end, no more emissions will be permitted.
As from 2027 road transport, buildings and industrial installation that fell out of EU ETS will be covered by a new EU ETS2. The "old" ETS and the new EU ETS2 allowances will be traded independently. A major difference to the ETS is that ETS2 will cover the CO2 emissions upstream - fuel suppliers rather than consumers will be obliged to cover emissions with ETS2 emission allowances. The 2 systems will cover 75% of the GHG emissions of the European Union.
Compared to 2005, when the EU ETS was first implemented, the proposed caps for 2020 represent a 21% reduction in greenhouse gases. This target was achieved six years early as emissions in the ETS fell to 1.812 billion (109) tonnes in 2014.
During the years 2005–2025, GHG emissions in the sectors covered by the ETS declined by around 50%, declining only by 20% in the not covered sectors. A 2020 study showed that between 2008 and 2016 the ETS reduced CO2 emissions by 11.5% in covered sectors despite low carbon price. A 2024 study estimate the emission reduction effect at 7%. According to a 2023 study the ETS, reduced emissions by 10% between 2005 and 2012 with no impacts on profits or employment for regulated firms. A 2024 study demonstrated that the ETS has contributed to reduce atmospheric levels of air pollutants in the EU including sulfur dioxide, fine particulate matter, and nitrogen oxide. This reduction has translated in local health co-benefits, alongside the system's primary goal of mitigating climate change. EU countries view the emissions trading scheme as necessary for meeting climate goals. A strong carbon market guides investors and industry in their transition from fossil fuels.