European Emission Trading Scheme

Started in 2005, the EU emissions trading system (EU ETS) covering about 11 000 installations is an essential part of the EU’s policy to combat climate change. The EU ETS works on the 'cap and trade' principle. A cap is set on the total amount of certain greenhouse gases that can be emitted by the installations covered by the scheme. The cap is reduced over time. Since the introduction we had several trading phases. Now into its fourth trading phase (2021-2030), the ETS framework has undergone several revisions to maintain the system’s alignment with the overarching EU climate policy objectives.

The legislative framework of the EU ETS for phase 4 was revised in 2018 to ensure emissions reductions in support of the EU's 2030 emissions reduction target (of -43% relative to 1990 level) and as part of the EU's contribution to the Paris Agreement.

On 14 July 2021, the European Commission adopted a series of legislative proposals setting out how it intends to achieve climate neutrality by 2050, including the intermediate target of an at least 55% net reduction in greenhouse gas emissions by 2030. The Fit for 55 package proposes to revise several pieces of EU climate legislation, including the EU ETS, Effort Sharing Regulation, transport and land use legislation, setting out in real terms the ways in which the Commission intends to reach EU climate targets under the European Green Deal.

The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C.