As of 1 January 2005 a new instrument to protect the climate will be implemented: emissions trading. Certain sectors of the economy in Europe (energy and industry) may trade in allowances to emit climate-damaging carbon dioxide (CO₂). A ton of CO₂ will be worth what the market for it determines. Trade aims to steer necessary reductions of greenhouse gas emissions to where it is least expensive. “All stakeholders have helped to make the introduction of emissions trading as a new cost-saving instrument of environmental policy in Germany a success”, said the president of the Federal Environment Agency, Prof. Dr. Andreas Troge. The German Emission Allowance Trading Authority at the Federal Environment Agency (DEHSt) allots free emissions allowances to companies in Germany.

At the 3rd Conference of the Parties to the Climate Framework Convention held in Kyoto, Japan, in December 1997, the community of nations agreed for the first time to commit to certain climate protection goals and measures. The international Kyoto Protocol led the way to emissions trading. The European Union has been preparing to trade in CO₂ emissions allowances for years. The idea is that companies which emit climate-damaging CO₂ must obtain emissions allowances, or so-called certificates, to do so. If the company does not have enough allowances at its disposal, it can reduce its CO₂ emissions by using climate-friendly technologies and fuels, or it must acquire additional allowances on the market.

The facilities in the energy and industry sectors participating in emissions trading are allotted free emissions allowances if they comply with the legally determined CO₂ emissions reduction quota to be achieved in these sectors by 2007. The conclusion of the allotment procedure, the award of emissions allowances for a total of 1,485 million tons CO₂ over the next three years (495 million per year), and the dispatch of the last notifications on 22 December 2004, signals the readiness of German companies to participate in emissions trading.