EU ETS explained
The original EU ETS uses a "cap-and-trade" mechanism, setting a declining limit on total emissions from covered sectors. Businesses receive or buy allowances and must hold one for every tonne of CO₂ they emit.
By putting a price on carbon, the system:
• Creates an economic incentive to reduce emissions
• Encourages innovation and efficiency
• Generates revenue to support the EU’s green transition
ETS2: Extending carbon costs in 2027
Starting in 2027, ETS2 will bring carbon pricing to everyday energy use, like heating homes or fuelling cars, by regulating fuel suppliers, not end consumers directly.
Here’s how it will work:
• No free allowances: All emission permits will be sold via auctions
• Revenues will support the Social Climate Fund, helping vulnerable households and small businesses adapt to higher energy costs
• A monitoring and reporting phase starts in 2025, giving businesses time to prepare
