Emissions Trading (ETS)

The Emissions Trading System (ETS) reduces greenhouse gas emissions through market-based approaches.

Emissions trading, particularly the Emissions Trading System (ETS), represents a market-oriented instrument in climate protection that aims to efficiently and cost-effectively reduce greenhouse gas emissions, primarily CO₂. The largest and best-known system of this kind is the EU Emissions Trading System (EU-ETS), which has been in operation since 2005 and sets benchmarks for similar systems worldwide.

The ETS is a cap-and-trade system that establishes a limit on the amount of greenhouse gas emissions that certain sectors, such as energy, industry, and aviation, are allowed to emit annually. Each ton of CO₂ equivalent emitted requires an emissions certificate, the total number of which corresponds to the established cap and is reduced annually to gradually decrease emissions. Companies can receive or auction certificates for free. Those who emit less than allocated can sell excess certificates, while those who emit more must purchase additional certificates.

The EU-ETS covers about 40–45% of greenhouse gas emissions in the EU and involves around 10,000 facilities. In addition to EU member states, countries such as Iceland, Norway, Liechtenstein, and Switzerland are also involved. The legal basis is the Emissions Trading Directive 2003/87/EC, and the system is crucial for achieving the EU's climate targets, such as reducing emissions by at least 55% by 2030.

The market mechanisms of the ETS promote cost-efficient emissions reduction, and the revenue generated is channeled into climate protection funds that support investments in renewable energy and energy efficiency. Despite its successes, the system faces challenges that require reforms to address oversupply and price collapse, ensuring that global climate goals are not jeopardized.