Abstract

An organization emits carbon dioxide (CO2) and other greenhouse gases (GHGs) through its daily operations, such as the electricity used to power its offices, manufacture products, and then fossil fuels used in vehicles to distribute them. This is referred to as an organization’s carbon footprint, and there is increasing stakeholder and regulatory pressure on management teams globally to reduce them. On other words, it is increasingly critical that the quantity of carbon dioxide and other greenhouse gases that a company is releasing into the atmosphere can be accurately measured in order to ensure that is being reduced accordingly. The European Union Emissions Trading System (EU ETS) is the most crucial tool for decarbonizing Europe, but it has also become a money-making machine. States and financial investors earn; for the power industry, which pays for it, the worst thing is not the system’s presence but its instability. Huge price jumps make it impossible to plan budgets and investments sensibly. This paper provides an introduction to the EU’s Emissions Trading System. As such it provides a discussion of the historical and legal context in which the EU ETS developed and now operates. This article covers the various ways in which these market dynamics, regulatory requirements and stakeholder expectations have converged to make European carbon markets a critical topic for today’s analyst.