ABSTRACT
This chapter reviews what the European Union Emissions Trading System (EU ETS) has achieved so far in terms of emission reductions. It focuses on recent developments, relating in particular to the legislation covering the period from 2021–2030. This legislation implements a significant share of the EU’s target to reduce its greenhouse gas emissions by “at least 40%” by 2030. The EU ETS is a “cap-and-trade” system that guarantees an environmental outcome by setting a cap on the total amount of carbon emissions. The quantity of allowances issued serves as the quantitative cap on emissions, and these allowances are then either auctioned or allocated for free to companies. The EU ETS works with the economic cycle: for example, a recession leads to lower emissions, affecting the supply/demand balance in the carbon market and causing a lower carbon price, while an economic recovery could have the reverse effect.
