EU Emissions Trading System
An EU cap-and-trade system regulating emissions from covered activities.
Example
A declining cap and tradable allowances shape compliance obligations.
The catch
Coverage and detailed rules change through legislation.
Related terms
1.5°C goal, Carbon pricing, Carbon tax, Climate justice, Conference of the Parties, CSRD
In more depth
EU Emissions Trading System, explained.
The EU Emissions Trading System covers power stations, energy-intensive industry and flights within Europe, and it has expanded to shipping. Emissions from the installations it covers have fallen substantially since it launched, helped by a cap that tightens each year and a reserve that absorbs surplus allowances. It mainly prices CO₂, so most methane sits outside it.
Free allowances have long protected industries exposed to foreign competition from carbon leakage. The EU is phasing them out as a carbon border adjustment on imports such as steel and cement phases in. A separate trading system for fuels used in buildings and road transport is due to follow, which would extend carbon pricing to households.