The EU Emissions Trading System (EU ETS) is a ‘cap and trade’ system. It caps the total volume of GHG emissions from installations and aircraft operators responsible for around 50% of EU GHG emissions. The system allows trading of emission allowances so that the total emissions of the installations and aircraft operators stays within the cap and the least-cost measures can be taken up to reduce emissions (see Benefits of cap-and-trade). The EU ETS is a major tool of the European Union in its efforts to meet emissions reductions targets now and into the future. The trading approach helps to combat climate change in a cost-effective and economically efficient manner. As the first and largest emissions trading system for reducing GHG emissions, the EU ETS covers more than 11,000 power stations and industrial plants in 31 countries, and flights between airports of participating countries.
The system was first introduced in 2005, and has undergone several changes since then. The implementation of the system has been divided up into distinct trading periods over time, known as phases. The current phase of the EU ETS began in 2013 and will last until 2020.