Emissions trading is about trading in certificates that entitle the holder to emit a certain amount of CO2. They can be allocated or traded, which effectively puts a price on emissions. The goal is to give carbon-intensive factories, power plants and the aviation sector an incentive to reduce their emissions.
The EU ETS was set up in 2005. It covers the stationary energy sector such as carbon-intensive factories and fossil fuel power plants and, since 2012, the aviation sector. In 2013 Switzerland started its own ETS, which was only compulsory for the stationary energy sector. Now that it has been linked to the EU's system, the Swiss ETS also includes the aviation sector and fossil fuel power plants.