The aim is to help EU Member States achieve compliance with their commitments under the Kyoto Protocol. Emissions trading does not imply new environmental targets, but allows for cheaper compliance with existing targets under the Kyoto Protocol. Letting participating companies buy or sell emission allowances means that the targets can be achieved at least cost.

If the Emissions Trading Scheme had not been adopted, other – more costly – measures would have had to be implemented.

The price will be a function of supply and demand as in any other free market. Market intermediaries already quote prices for small quantities of allowances offered or bid for. The Commission will not intervene in the allowance market. Should distortions occur, competition law would be applicable as with any other market.

The National Allocation Plans (NAP) determine the total quantity of CO2 emissions that Member States will grant to their companies, which can then be sold or bought by the companies themselves. This means each Member State must ex-ante decide how many allowances to allocate in total for the first trading period 2005 to 2007 and how many each plant covered by the Emissions Trading Scheme will receive. The idea is that Member States limit CO2 emissions from the energy and industrial sectors through the allocation of allowances, thereby creating scarcity, so that a functioning market can develop later and overall emissions are then really reduced.