The European Union’s Emissions Trading System (EU ETS) was a pioneering programme when it launched in 2005, the first in the world to attempt to introduce a compulsory carbon market to reduce emissions in high-intensity carbon-emitting industries. In the ensuing 16 years, much has changed as climate change has risen to the top of the global agenda. There are now a number of exchanges for trading carbon emission certificates globally: three in Europe, two in the US, and one each in New Zealand and South Korea. And more countries, industries and companies have adopted net zero targets. Companies participating in the EU ETS already account for 40% of greenhouse gas emissions in Europe, and the European Commission has proposed expanding emissions trading to other sectors, including road transport and shipping. Given the importance of the EU ETS—it has led to a reduction of 35% in emissions—and history, other countries are looking to it to learn from its experiences. As it continues to develop, the EU ETS is often seen as a template for a coordinated global approach to carbon pricing.

The EU ETS sets targets for emissions reduction and is now in its fourth phase, which will apply for the period 2021–30.

The 2030 target for greenhouse gas emissions will require the sectors covered to reduce emissions by 43%, compared with 2005 levels. Recent proposals from the European Commission have suggested increasing the target to 61%.

There will also be a reduction in the number of allowances issued annually, and in turn, the price of carbon may continue to rise.

In the 16 years