European Union Emission Trading

The European Union´s  Emission Trading System is based on a 'cap and trade' approach.  The EU caps the overall level of emissions allowed and then allows participants in the system to buy and sell allowances. These allowances are the common trading 'credits' that Danfonds designs and structures. One allowance gives the holder the right to emit one tonne of CO₂.

Member States draw up national allocation plans which determine their total level of emissions and how many emission allowances each installation in their country receives. At the end of each year installations must surrender allowances equivalent to their emissions. Companies that keep their emissions below the level of their allowances can sell their excess allowances. Those facing difficulty in keeping their emissions can buy allowances they need on the market.