Q&A: The EU ETS: Driving decarbonisation, while keeping Europe competitive

What is the EU Emissions Trading System (ETS) and what role does it play in Europe's climate policy?

The EU ETS is the European Union's carbon market and its main tool for reducing greenhouse gas emissions. Established in 2005, it works on a ''cap-and-trade'' principle: the EU sets a limit on the total emissions allowed from covered sectors, and companies must surrender allowances for the emissions they produce. This creates a carbon price that encourages emissions reductions and investment in cleaner solutions.

The EU ETS is widely considered the centrepiece of EU climate policy and the world's largest carbon market. Today, it covers around 40% of EU's greenhouse gas emissions, including emissions from power generation, energy-intensive industries and aviation. Its scope is expected to expand significantly in the coming years as additional sectors are brought into the system.

What is the difference between ETS 1 and ETS 2?

The current system is referred to as EU ETS 1, covering sectors such as energy intensive industries, power generation and aviation. A separate system, EU ETS 2, will extend carbon pricing to buildings and road transport. Together, these systems are expected to cover around 70% of EU greenhouse gas emissions by 2028.

How does the ETS support industrial decarbonisation, and why is it important for Europe's technology industries?

The EU ETS supports industrial decarbonisation by putting a price on carbon emissions and creating incentives for companies to invest in cleaner production processes, energy efficiency and low-carbon technologies.

Orgalim considers the ETS a market-based, technology-neutral and cost-efficient tool that has played an important role in driving investment in decarbonisation. Europe's technology industries are crucial to this transition, as they develop and supply many of the solutions needed to reduce emissions, including carbon-neutral energy solutions, electrification technologies, advanced manufacturing systems and clean industrial equipment.