Under the emissions trading system, which is based on the 'polluter pays' principle, more than 10,000 power plants and industrial production facilities are obliged to hold an allowance (in the form of emission certificates) for every tonne of CO₂ they emit. The less pollution, the lower the costs. Companies must purchase emission allowances (certificates) at auctions (auctions). The price depends on supply and demand. Some allowances are allocated free of charge - especially in areas where there is a risk that companies will relocate their production to other countries where less stringent emissions requirements must be met (‘carbon leakage’).
In order to adapt the ETS to the higher emission reduction targets of the European Green Deal, the EU agreed in December 2022 to update the regulation, which provides for a 62% reduction in industrial emissions by 2030.