The Kyoto Protocol sets a cap on allowable greenhouse gas emissions, which means that the EU economy will be a carbon-constrained economy in the future. This carbon constraint gives value to the allowances and leads to changes in relative prices in the EU economy. Goods that contain more carbon will be relatively more expensive than goods that contain less carbon.

Emissions trading is a key part of the longer term solution to greenhouse gas emissions. It can help to ease the transition to a lower carbon economy and will complement other measures in the business sector. Trading itself cannot deliver emission reductions. But it can give companies and countries sufficient flexibility to deliver cuts in the most cost effective way, and provides an incentive to seek out and develop new ways of reducing emissions.

JI and CDM will transfer environmentally sound technology to countries with economies in transition (JI) and developing countries (CDM), which will help them move onto a sustainable path of development.