The Emissions Trading System (ETS) is the European Union’s flagship climate policy. It is intended to establish a legal limit (or “cap”) on carbon dioxide emissions (and more recently, those of other greenhouse gases) by making it expensive to pollute beyond this limit.
The basic idea is that it sets an overall legal limit on the CO2 emissions of over 11,000 power stations, factories and flights covered by the scheme, which operates in 31 countries and accounts for almost half of the EU’s greenhouse gas emissions. Each “installation” then receives permits to pollute, which are known as European Union Allowances (EUAs).
The ETS is supposed to provide incentives to companies who pollute less by allowing them to trade surplus permits with other companies. But the cap has been so generous that permits have been over-abundant and their price has collapsed. It has failed to make any substantial dent in the EU's greenhouse gas emissions, while returning billions of euros to big polluters in the form of unearned profits.
Corporate Europe Observatory argues that the ETS is unreformable and should be scrapped. For more resources, see: