As a reaction to the developing urgency of weather changes, political measures aimed toward decreasing greenhouse gas emissions are being carried out. One extraordinary attempt on this regard is the European Union Emissions Trading System (EU ETS), which adopts a market system in order to restrict and decrease carbon dioxide emissions. This thesis empirically investigates the effect of participation in EU ETS carbon dioxide emission system from 1995 to 2016. Our evaluation makes use of annual panel data with lagged variables, allowing examination of time delayed outcomes. The variables consist of CO2 emissions in relation to capital, GDP per capital, industrial output, renewable energy consumption, environmental tax revenues, and participation in EU ETS.

In the end, the European Union Emissions Trading System (EU ETS) provides a modest but measurable contribution for long-time period discount of greenhouse gas emissions and highlights the significance of marketplace mechanisms in environmental policy. This study suggests that market-based mechanisms like the EU ETS can play a supportive role in climate policy, yet their efficacy depends on integration with broader structural reforms. For policymakers, these findings underscore the need to complement carbon trading systems with accelerated investments in renewable energy infrastructure, stricter industrial decarbonization mandates, and equitable economic policies that decouple growth from fossil fuel dependency. Ultimately, achieving meaningful emissions mitigation requires a multi-faceted strategy that prioritizes systemic transitions over incremental market adjustments.