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Case study

The European Union Emissions Trading System (EU ETS)

Countries and regions
Europe and Central Asia
Action area


Case summary

The EU ETS was established in 2003 by a Directive of the European Parliament and the European Council, and came into operation in 2005. It is the cornerstone of EU policy towards combatting climate change by reducing GHG emissions cost-effectively. It is the first multinational cap-and-trade system at the level of installations and covers 45% of GHG emissions of the EU. It covers 31 countries which, in total, account for 20% of global gross domestic product (GDP) (EDF et al. 2015).

The main objective of the EU ETS is to help EU Member States meet their commitments under the Kyoto Protocol to limit or reduce GHG emissions in a cost-effective way. The system does this by capping the overall level of emissions across EU Member States and permitting the trade of emissions allowances. Each allowance gives the emitter the right to emit 1 tonne of CO 2 or an equivalent amount of any other GHGs. The ETS, in contrast to traditional ‘command and control’ regulation, allows the market to identify the most cost-effective emission reductions.

Planning and implementation activity
Developing Strategies and Plans, Developing and Implementing Policies and Measures
Institutions involved
  • European Parliament
  • European Commission (EC)
  • European Council
  • EU Member State governments
  • EC Climate Change Committee
Sectors and themes
Energy Efficiency, Industry, Transport
Source details
Global Good Practice Analysis (GIZ UNDP)

Results supported byUNDPWorld Resources InstituteTransparency partnership