Putting a price on carbon is essential to drive the technological and behavioural innovation necessary to limit climate change. The use of market-based instruments, such as emission trading systems (ETS), is crucial to price carbon emissions and to keep the costs of climate action low.
Many OECD countries participate in the European Union Emissions Trading System (EU ETS), which is the major compliance market to achieve greenhouse gas emission reductions. This cap-and-trade scheme establishes an emissions limit and allows for emitting entities to trade allowances for the right to emit up to their allowed limit under an agreed target or "cap" on national emissions.
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