Emissions Trading System (ETS)
The Emissions Trading System (ETS) , also known as Cap-and-Trade , is a market-based carbon pricing mechanism aimed at reducing greenhouse gas (GHG) emissions through a combination of regulatory oversight and economic incentives. How It Works Setting a Cap : Governments or regulators establish a cap (upper limit) on the total GHG emissions allowed for a specific sector or economy. The cap decreases over time to drive continuous reductions in emissions. Allocating Allowances : Emission allowances (permits) are distributed to participating entities. Each allowance typically permits the emission of one ton of CO₂ or its equivalent. Distribution methods include free allocation (based on historical emissions) or auctioning (bidding for allowances). Trading Mechanism : Companies that emit less than their allowances can sell surplus credits to others exceeding their caps. Creates a financial incentive to reduce emissions cost-effectively. Monitoring and Enforcement : Regulators track emissi...