What is the EU ETS?
The EU Emissions Trading System (EU ETS) is a global carbon market. It is the EU’s main tool to reduce greenhouse-gas emissions.
Under the system, companies must pay for their greenhouse gas emissions, encouraging them to cut pollution in the most cost-effective way. The money raised helps fund the transition to cleaner energy and technologies.
The EU ETS makes clean investment pay off, rewards frontrunners and supports economic transformation, thus contributing to the EU’s competitiveness and independence.
The EU is now reviewing its emissions trade system to ensure it adapts to Europe’s changing needs. At the same time, the ETS2 will extend carbon pricing beyond the existing EU ETS to include buildings, road transport and other additional sectors.
The EU ETS has applied to power generation and energy-intensive industries since 2005. It was extended to aviation in 2012 and to maritime transport in 2024. It operates in all EU countries, as well as Iceland, Liechtenstein and Norway. Since 2020, it has also been linked to the Swiss Emissions Trading System (Swiss ETS).
The benefits of the EU ETS
The EU ETS has delivered real results. Since 2005, emissions from covered sectors have decreased by more than 50%.
Source: European Environment Agency
Since 2013, the EU ETS has generated more than €270 billion in revenues, with around three quarters allocated to Member States. In addition, the EU has allocated around €255 billion worth of free allowances to support the transition.
- The Innovation Fund has investedover €15.00billionin clean technologies and innovative projects since 2020
- The EU ETS has generated€270.00billionin auction revenues since 2013
- The Modernisation Fund has disbursedover €23.00billionsince 2021
- The EU has allocated€255.00billionworth of free allowances between 2013 and 2025
How the EU ETS is being modernised?
As Europe's economy and global challenges evolve, the EU ETS also needs to evolve. The EU’s new industrial needs and challenging geopolitical context are requiring a reform of the system.
The reform will strengthen support for clean investment and provide a clear, predictable path to help businesses reduce emissions while remaining competitive.
What will change in the EU ETS?
The review will make the EU ETS more supportive for European industry while keeping it a key tool to achieve Europe’s climate goals.
ETS2 – the new EU carbon market for buildings, road transport and additional sectors
ETS2 is the new EU carbon market designed to help reduce emissions from sectors that were not covered by the existing EU ETS, mainly road transport, buildings and some additional small industries. It will become fully operational in 2028 and is not impacted by the reform proposals.
Like the original ETS, it will operate through a “cap-and-trade” system, but it will regulate emissions upstream: meaning it will apply to fuel suppliers, not directly to households or individual consumers.
A share of the revenues generated will be used to support vulnerable households and micro-enterprises through the Social Climate Fund by:
- helping renovate buildings to improve insulation and energy-efficiency
- replacing outdated heating, cooling and cooking systems with cleaner options
- installing renewable energy sources, like solar panels
- improving access to zero-emission transport, like electric public transport, and to shared mobility
- providing temporary direct financial help for those who need it most
Frequently asked questions
Why is the Commission changing the EU ETS?
The system needs to evolve to reflect Europe’s changing economy and global challenges. Adjusting the annual reduction of the emissions cap will make the transition more gradual and predictable, giving businesses more time to plan, invest in clean technologies and remain competitive while continuing to reduce emissions.
How are carbon pricing revenues supporting jobs in the EU?
By 2030, carbon pricing revenues could help create more than 1 million new jobs across clean industries, energy efficiency, and green transport. This job creation will be supported by revenue recycling, retraining schemes, and regional investment under the EU ETS.
How is carbon pricing contributing to a healthier environment?
Carbon pricing contributes to cleaner air. It discourages fossil fuel use, cutting harmful pollutants like sulphur oxides (SOx), nitrogen oxides (NOx) and fine particulate matter (PM2.5).
By reducing air pollution, carbon pricing can help reduce the risk of asthma, respiratory illness, cardiovascular disease and premature deaths. Cleaner air saves on healthcare costs and improves quality of life, especially in urban areas.
What benefits does the EU ETS bring to society?
Carbon revenues directly benefit society, the economy and citizens’ daily life. The EU ETS has generated around €270 billion in revenues for EU countries since auctions were launched in 2013. These funds have been reinvested directly in clean public transport, energy-efficient housing and modern infrastructure that improves daily life for millions of people.
These revenues have supported projects such as new green buses in Hungary, flood risk management in Estonia or a mobility voucher programme in Italy. Under the review, a greater share of these revenues will be reinvested in industry covered by the EU ETS to help accelerate industrial decarbonisation.
Is the EU the only region in the world with carbon pricing?
Carbon pricing is a proven approach used in an increasing number of countries worldwide. It is already in place in countries such as China, South Korea, New Zealand, Canada, and several US states. New systems are being developed in Brazil, Turkey, Japan and India to name just a few.
In fact, between 2016 and 2026, the number of implemented carbon taxes and ETSs more than doubled, along with the share of global GHG emissions they cover. Carbon pricing schemes now cover almost 30% of global emissions.
This page was last updated on 24 September 2026