Emissions Trading System
Compare national policies on Emissions Trading System across jurisdictions, through progress, institutions, and expectation structures.
What it is
A system that sets a cap on emissions and lets companies trade allowances. Firms that can cut emissions sell allowances and those that cannot buy them, lowering the overall cost of abatement.
Implications for companies
Covered firms must measure, report and verify (MRV) emissions and acquire allowances for any shortfall. As free allocation gives way to paid allowances, emissions become a direct cost on the income statement.
Differences by country
The EU system (since 2005) is the most mature, centred on paid auctions. Japan’s GX-ETS becomes mandatory from FY2026 for firms emitting over 100,000 t/yr (initially free allocation). China launched in 2021 for the power sector and expanded to steel, cement and aluminium in 2025 (intensity-based allocation).
What to watch
The EU delayed ETS2 (buildings, road transport) to 2028. Japan plans paid auctions for the power sector in 2033. China plans to tighten allocation in Phase 2 (from 2027).
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