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The EU Emissions Trading Scheme (EU ETS) is a cap-and-trade system which the UK participates in.
The cap element limits the amount of GHGs that can be emitted by the Member State installations that are covered by the scheme. The cap will gradually be reduced. Emission allowances are given to installation operators; some for free, some by auction, and some are made available for allocation to new entrants. The trade element allows operators to trade their allowances. After each year, operators must surrender enough emission allowances to cover their emissions; otherwise heavy fines are imposed to reflect the fact that the operator has exceeded its capped limit.
Adherence to the cap, surrendering of emission allowances, and the prescription of installations and operators caught by the scheme are controlled by UK legislation.