The "Cap&Trade" principle forms the basis of emissions trading: An upper limit (cap) is defined, which sets the total amount of greenhouse gas emissions permitted for all affected installations subject to emissions trading. The installations receive a corresponding quantity of emission allowances, either free of charge or through auctions. These certificates can then be freely traded on the market, establishing a market price for the emission of greenhouse gases. The European Commission plays a central role in emissions trading, for example by setting the legal and regulatory framework and defining the emissions targets. It is also responsible for monitoring, reporting and reviewing the system to ensure that it contributes effectively to the reduction of greenhouse gas emissions. The European Commission is also working to adapt and improve emissions trading.

The energy sector and energy-intensive industries are the main sectors required to participate in EU emissions trading. These include power plants and other combustion plants with a rated thermal input of more than 20 MW, regardless of the fuels used, as well as plants operating in energy-intensive industries such as refineries, iron and steel works, glass factories and some chemical plants. Aviation and, since 2024, maritime transport are also affected. A reform of the emissions trading system could also lead to the inclusion of further sectors.

The EU Commission's Carbon Border Adjustment Mechanism (CBAM) aims to create fair competitive conditions by obliging importers of certain energy-intensive products to pay for their CO2 emissions, create a level playing field by obliging importers of certain energy-intensive products to pay for their CO2 emissions, similar to European producers participating in EU emissions trading. Since October 2023, importers have had to report the emissions of their products, and from 2026 the submission of CBAM certificates will be mandatory, with costs based on the CO2 content of the imported products. The CBAM, which initially focuses on direct and certain indirect emissions in sectors such as iron, steel, aluminium, cement, fertilizers and hydrogen serves to protect against carbon leakageand promotes climate protection by incentivizing the production and import of low-emission products and encouraging countries outside the EU to introduce carbon pricing systems.

Importers of certain energy-intensive products into the EU must prepare a CBAM report. This concerns product groups such as iron and steel, cement, fertilizer, aluminium, hydrogen and electricity (such as partly primary products and processed products), as these products can cause significant CO2 emissions during their manufacture in third countries. This includes both direct and indirect (e.g. electricity-based) emissions from imported products.

The CBAM will be introduced in stages, with a transition period from October 1, 2023 to December 31, 2025. December 2025, in which changes to the regulatory requirements, the methods for calculating emissions and the affected product categories are possible. From 1. January 2026 the final phase begins with a annual declaration obligation and the mandatory purchase of CBAM certificates.

The "Fit for 55" package is a bundle of EU measures to accelerate climate protection, with the aim of reduce net-greenhouse gas emissions by 2030 by at least 55% (compared to 1990). Important elements include the expansion of emissions trading to new sectors such as heating and transport from 2027, the promotion of renewable energies with a target of 45% of gross electricity consumption, an increase in energy efficiency and specific regulations for climate-friendly aviation and maritime shipping. A new emissions trading scheme for buildings and transport will also be established.

The "Fit for 55" package strengthens the EU Emissions Trading System, by introducing changes following an agreement in December 2022, which was published in May 2023. Accordingly, the climate protection targets for 2021-2030 will increase from 43% to 62% reduction compared to 2005. This target is to be achieved by increasing the Linear Reduction Factor (LRF). An additional reduction in the cap is also to be implemented in 2024 and 2026. The cap will be reduced by 90 million allowances in 2024 and by 27 million allowances in 2026. In addition, the cap will include maritime transport, which will result in an adjustment of the cap by around 78 million allowances.

Carbon Leakage refers primarily to the effect, in which climate protection measures in one country shift production and thus CO2 emissions to countries with less stringent climate protection requirements. This can undermine the global reduction in emissions, as emissions are not actually reduced, but merely shifted geographically.