Glossary:Emissions trading system (ETS)

An emissions trading system, also known as emissions trading scheme and abbreviated as ETS, is a market mechanism that allows those bodies (such as countries, companies or manufacturing plants) which emit (release) greenhouse gases into the atmosphere, to buy and sell these emissions (as permits or allowances) amongst themselves.

Emissions mean the release of greenhouse gases and/or their precursors into the atmosphere over a set area and period of time. The European Union Emission trading system (EU ETS) is based on the idea that creating a price for carbon offers the most cost-effective way to achieve the significant cuts in global greenhouse gas emissions that are needed to prevent climate change from reaching dangerous levels.

The EU ETS is the first international trading system for carbon dioxide emissions in the world and applies not only to the EU Member States but also to the other three members of the European Economic Area – Norway, Iceland and Liechtenstein. It covers over 11 000 heavy energy-using installations (power stations & industrial plants) and airlines operating between these countries, which are collectively responsible for close to half of the EU's emissions of CO2 and 45 % of its total greenhouse gas emissions.

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