What is emissions trading?

In Europe, North America, Australia and New Zeeland, national and regional emissions trading systems have been introduced to regulate industries that are particularly energy-intensive and emissions-intensive through a market mechanism. Emissions trading employs a marketplace to reduce emissions of harmful gases, which creates motivation for investing in climate-friendly technologies.

There is an "obligatory market" and a "voluntary market".

In the case of the "obligatory market", the states allocate a fixed number of emission certificates per year to all companies that are obliged to trade emissions. This amount is smaller than the amount of emissions that a business creates. Businesses have to achieve the rest of the emissions reductions through reduction measures or else buy emissions certificates from businesses that do not need them because they have carried out a greater amount of reduction measures. The intention is to create incentives for implementing emission reduction measures through a high market price for tradeable emission certificates.

The "voluntary market" allows emissions to be offset, outside of the state regulations, for responsible companies, organisations and individuals.

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