The ETS is the main EU tool for reaching the Kyoto Protocol objective of a reduction of 8% CO2 equivalent by 2012 relative to the 1990 baseline for 15 EU member states.
Under the ETS, each participating country proposes a National Allocation Plan (NAP) including caps on greenhouse gas emissions for power plants and other large point sources. The European Commission must approve each NAP which determines the quantity of CO2 emissions granted by Member States to domestic companies.
The allocations can then be bought or sold by the companies concerned.