EU ETS stands for EU’s Emission Trading System, it is the EU climate policy. The project aims to reduce emissions by pricing greenhouse gas from the sector of the power, industry and aviation sectors. With the concept of ‘polluter pays principle’ meaning the costs of pollution should be borne by those who create it.
EU ETS has been launched since 2005 which is the oldest and largest in the world until 2021 when the Chinese ETS kicked off.
The current EU ETS target is to reduce emissions by 43% by year 2030. By 2020 it was already reached the goal.
EU ETS use Cap and trade system which cap is limitation amount of emission creation and trade meaning if the company has succeeded in lowering its emissions then the company can sell it spare allowances to another company or can decide to save them for future needs. Cap will decrease by a fixed amount each year using linear reduction factor (LRF). Since 2013 to 2020, cap was set at 1.74%, 2021 set at 2.2%. Which the higher the LRF the lower the emissions.
Resource: https://carbonmarketwatch.org/wp-content/uploads/2022/03/CMW_EU_ETS_101_guide.pdf
This article is a part of the class “751447 SEM IN CUR ECON PROB” supervised by Asst. Prof. Napon Hongsakulvasu Faculty of Economics, Chiang Mai University.
This article was written by Anna Kangwannavakul student ID 631615063