The EUETS works on the "cap-and-trade" principle.

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The EUETS (European Union Emissions Trading System) operates on the cap-and-trade principle. This means that a cap is set on the total amount of greenhouse gas emissions that can be produced by participating industries and companies, and they are required to hold allowances (permits) equivalent to their emissions. These allowances can be traded among participants, allowing those who can reduce their emissions more easily or at a lower cost to sell their excess allowances to those who need them. This system is intended to incentivize emissions reductions and provide a market-based solution for tackling climate change.

The EUETS Works on the "Cap-And-Trade" Principle