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What is the EU ETS? - European Commission

climate.ec.europa.eu · 2,384 words · saved by 1 readers

This site uses cookies to offer you a better browsing experience. Find out more on how we use cookies. All official European Union website addresses are in the europa.eu domain. See all EU institutions and bodies The EU ETS works on the ‘cap and trade’ principle. A cap is a limit set on the total amount of greenhouse gases that can be emitted by the installations and aircraft operators covered by the system. The cap is reduced annually in line with the EU’s climate target, ensuring that emissions decrease overtime. Since 2005, the EU ETS has helped bring down emissions from power and industry plants by 37%. The cap is expressed in emission allowances, where one allowance gives the right to emit one tonne of CO2eq (carbon dioxide equivalent). For each year, companies must surrender enough allowances to fully account for their emissions , otherwise heavy fines are imposed. Within the cap, companies primarily buy allowances on the EU carbon market, but they also receive some allowances

On 17 July 2026, the European Commission proposed a targeted revision of the EU Emissions Trading System (EU ETS) to strengthen Europe's industrial competitiveness and support the delivery of the EU's 2040 climate target . The proposal reinforces the EU ETS as a driver of investment, with significant additional support for industrial decarbonisation through a new Industrial Decarbonisation Bank, an Investment Booster and continued funding under the Innovation Fund and the Modernisation Fund . It also modernises the carbon market, strengthens incentives for companies to invest in decarbonisatio

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