It was in 1997, 184 UN member states agreed to ratify the Kyoto Protocol. It aimed to force industrialized nations to cut their greenhouse gas emissions by 5% over ten years. It entered into force only in 2005, after eight years. Time to fulfill the conditions for its implementation. In Europe, to be able to achieve these goals, the EU authorities have created since this year “pollution rights market” or “carbon market”. Since then, it has enabled access to more than 10,000 companies in the industrial sector emission quotas. In specific terms, the European Union defines emission limits (in tons of CO2) for a certain period. This ceiling is then distributed among the various market participants in the form of trading premiums.

The polluter pays

Each quota corresponds to the emission permit of one ton of CO2. At the end of each period, the company should theoretically emit as many tons of CO2 as the carbon quotas allocated to it. In case of excess, he will have to change his situation. By buying allowances on the market from companies that emit less than expected. In 2019, we learned that Tesla made almost $1.7 billion in ten years. By selling their carbon credits to other car manufacturers. Of course, US quota law differs from EU law, but the principle remains the same.

By taxing the most polluting companies in this way, The EU aims to encourage them to invest in facilities with a lower carbon content. The peculiarity of this system: the emission ceiling decreases from year to year. And with it the number of allocated quotas. This means that every year companies have to choose between polluting less or paying more.

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Sea and road transport, heating of buildings

Going hand in hand with its new climate ambitions, The EU regularly reforms this system. From 2024, it will include CO2 emissions from maritime transport. The European institutions officially confirmed theirs today desire to extend this system of quotas to road transport and heating of buildings. For consumers, this can mean higher gas prices. As well as those on the heating bill. Implementation is planned for 2026. Negotiators from the parliament and member states are trying to push the system to 2027 or even 2028. The European Union aims to reduce greenhouse gas emissions by 55% by 2030 compared to the 1990s. 2005 and in 2021 it reduced them by 35%.