The EU ETS (European Union Emissions Trading System) is a market-based approach designed to reduce greenhouse gas emissions. It operates on a cap-and-trade principle, where a limit is set on the total emissions allowed from certain sectors. Companies receive or buy emission allowances, which they can trade with one another, incentivizing them to lower their emissions. Launched in 2005, the EU ETS covers various industries, including power generation and manufacturing. By putting a price on carbon emissions, it encourages businesses to invest in cleaner technologies and practices, ultimately aiming to meet the EU's climate goals and commitments under international agreements.