ETS: the Emissions Trading Scheme

The ETS, or Emissions Trading Scheme, is a cap and trade mechanism to regulate carbon emissions, promote energy efficiency, and combat global warming. Carbon trading is likely to be a huge financial market in the near future.

An ETS is a market based approach to carbon emissions reduction, where unused emissions permits can be sold (or traded) to businesses which need the permits for their own emissions. An alternative to a market based ETS is a carbon tax, which would simply provide revenue to the government without trading in permits.

A number of countries already have an ETS. Australia is considering its own ETS, which is a highly sensitive issue right now. If it is introduced, the permits are intended to be called Australian Emissions Units, or AEUs.

Voluntary carbon offset market

In addition to the proposed mandatory ETS for large emitters, there is an existing voluntary market for carbon credits. These allow anyone (including individuals) to offset their carbon usage (often called a "carbon footprint") by purchasing carbon credits. The credits may represent new plantings of trees to act as a carbon sink. However, voluntary carbon offsets are not the same as a well regulated ETS, and suppliers of voluntary carbon offsets are not subject to the same rigorous verification procedure that will apply to an ETS.