European Union Emissions Trading System in the context of Carbon emission trading

The European Green Deal, approved in 2020, is a set of policy initiatives by the European Commission with the overarching aim of making the European Union (EU) climate neutral in 2050. The plan is to review each existing law on its climate merits, and also introduce new legislation on the circular economy (CE), building renovation, biodiversity, farming and innovation.

The president of the European Commission, Ursula von der Leyen, stated that the European Green Deal would be Europe's "man on the moon moment". On 13 December 2019, the European Council decided to press ahead with the plan, with an opt-out for Poland. On 15 January 2020, the European Parliament voted to support the deal as well, with requests for higher ambition. A year later, the European Climate Law was passed, which legislated that greenhouse gas emissions should be 55% lower in 2030 compared to 1990. The Fit for 55 package is a large set of proposed legislation detailing how the European Union plans to reach this target. ETS2 is the new EU Emissions Trading System that will enter into force in 2027 and, for the first time in history, will set a price for CO2 emissions from fuels used in the building and road transport sectors.

Fit for 55 is a package by the European Union designed to reduce the European Union's greenhouse gas emissions by 55% by 2030. It is part of the union's strategy of the European Green Deal presented first in December 2019.

The package was proposed by the European Commission in July 2021. After being tabled in 2021, the plans were passed in 2023. Measures include additional support for clean transport, renewables, and a tariff called the Carbon Border Adjustment Mechanism on emissions for high-carbon imports from countries lacking sufficient greenhouse gas reduction measures of their own. It proposes to extend the European Union Emissions Trading System to transport and heat. Compared to the net-zero scenario from the International Energy Agency, the plan contains more measures to ensure that energy remains affordable.

A carbon credit is a tradable instrument (typically a virtual certificate) that conveys a claim to avoided GHG emissions or to the enhanced removal of greenhouse gas (GHG) from the atmosphere. One carbon credit represents the avoided or enhanced removal of one metric ton of carbon dioxide or its carbon dioxide-equivalent (CO₂e).

Carbon offsetting is the practice of using carbon credits to offset or counter an entity's greenhouse gas (GHG) inventory emissions in line with reporting programs or institutional emissions targets/goals. Carbon credit trading mechanisms (i.e., crediting programs), enable project developers to implement projects that mitigate GHGs and receive carbon credits which can be sold to interested buyers who may use the credits to claim they have offset their inventory GHG emissions. Similar to "offsetting", carbon credits that are permitted as compliance instruments within regulatory compliance markets (e.g., The European Union Emission Trading Scheme or the California Cap-n-Trade program) can be used by regulated entities to report lower emissions and achieve compliance status (with limitations around their use that vary by compliance program). Aside from "offsetting", carbon credits can also be used to make contributions toward global net zero GHG-level targets. It is an individual buyer's choice how to use, or "retire", the carbon credit.