In 2002, the European Union ratified the 1997 Kyoto Protocol on climate change, which requires that global greenhouse-gas emissions be reduced by 2012 to an amount 5 percent below 1990 levels. To do its part, the EU is relying largely on market mechanisms. Companies that operate certain carbon-emitting facilities, such as coal- or oil-fired electrical generating stations, are granted "allowances" -- the legal right to release a certain amount of carbon dioxide into the atmosphere each year -- and may buy and sell these allowances as they wish.

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