Emissions trading is a market-based approach to pollution control. Its primary objective is to reduce greenhouse gas emissions by establishing a market in which scheme participants buy and sell greenhouse gas ‘allowances’ which give permission for certain levels of pollution to be emitted. The EU Emissions Trading Scheme (EU ETS) was established under a European Directive. It is a cap-and-trade system under which there is a limit on total emissions and operators must surrender carbon allowances in line with their annual emissions otherwise heavy fines are imposed. Some allowances are allocated to operators for free, some are auctioned, and others available for allocation to new entrants. Operators can trade allowances with one another as needed.
The key pieces of legislation relating to this subject can be found under the 'key legislation' tab.