How do Emissions Trading Schemes Work?
Did you know that in many regions of the world, businesses operating industrial processes pay a price for the CO₂ they release into the atmosphere? This is part of a commitment to tackling climate change and provides a financial incentive for companies to reduce emissions.
So, how does it work? It can either be a Cap and Trade scheme, or a carbon tax. Cap and Trade schemes cap the total amount of CO₂ that can be emitted and the cap reduces over time to ensure emissions fall. Individual companies buy or receive emissions allowances which they can trade with one another as needed, and this forms the currency of a carbon market. This is known as an Emissions Trading Scheme, or ETS.
The current market price (May 2021) in the EU ETS is approximately €55 per tonne of CO₂. A new UK ETS has been formed with a floor (lowest) price of £22 per tonne of CO₂. Trading in the UK scheme is due to start tomorrow (19th May 2021). It’s going to be interesting to see where the UK true market value lands.
OPEX's AI-driven software, emissions.AI, helps companies to track their emissions and highlights daily opportunities to reduce them so they can meet their environmental goals, and minimise their ETS bill.