Paris Agreement and Ets

The Paris Agreement and ETS: What You Need to Know

The Paris Agreement, also known as the Paris Climate Accord, is a global agreement between countries aimed at reducing greenhouse gas emissions and limiting global temperature rise to well below 2 degrees Celsius above pre-industrial levels. One of the key mechanisms for achieving this is the implementation of an Emissions Trading System (ETS).

What is an ETS?

An ETS is a market-based approach to reducing greenhouse gas emissions. It works by creating a market for emissions allowances, which are essentially permits to emit a certain amount of greenhouse gases. These allowances can then be bought and sold on the market, creating a financial incentive for companies to reduce their emissions.

Under an ETS, companies that exceed their emissions allowance can purchase additional allowances from companies that have reduced their emissions below their allowance. This creates a market-based incentive for companies to reduce their emissions, as those that are able to do so can profit from selling their excess allowances.


The EU ETS is the largest emissions trading system in the world and covers all countries in the European Union. It was established in 2005 and has undergone several revisions since then. Under the EU ETS, companies in the energy and industrial sectors are required to obtain allowances for their emissions.

The Paris Agreement and the ETS

The Paris Agreement explicitly mentions the use of market mechanisms, such as the ETS, as a means of achieving its goals. The Agreement also sets out guidelines for the implementation of market mechanisms, including the need for them to be transparent, non-discriminatory, and consistent with environmental integrity.

Some critics of the ETS have argued that it is not an effective means of reducing emissions, as the market price of allowances can be volatile and subject to speculation. Others argue that the ETS is necessary as a complementary policy tool alongside other measures, such as regulations and subsidies for renewable energy.

In conclusion, while the ETS is not a panacea for reducing greenhouse gas emissions, it is an important tool for achieving the goals of the Paris Agreement. It provides companies with a financial incentive to reduce their emissions and can help to shift the economy towards a low-carbon future. As the world continues to face the urgent challenge of climate change, the ETS will continue to play a crucial role in the global response.

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