Emissions trading (EU ETS) is a market instrument used by the EU to reduce greenhouse gas emissions and achieve its climate targets in a cost-effective manner. Trading in emission allowances (‘emissions trading’) refers to trade in emissions capacity, the right to emit certain volumes of greenhouse gases. Because these allowances are both bought and sold, greenhouse gas emissions are allocated a price.
On 1 January 2021, following reforms, the 4th trading phase of the EU ETS started. The revised EU ETS Directive will apply at least until 2025.