In the EU system, the overall cap is lowered every year. As the cap falls, fewer allowances reach the market, so allowances become scarce and carry a price.
Consider a hypothetical example in which a system hands out 600,000 allowances to one business and 400,000 to another. If the first business emits 700,000 tonnes, it is 100,000 allowances short, and if the second emits 300,000 tonnes, it has 100,000 surplus allowances. If allowances trade at 80 euros, the first business pays 8 million euros and the second receives 8 million euros. At 60 euros, both the amount paid and the amount received are 6 million euros.
This differs from baseline and credit, in which reductions are certified and made tradable: cap and trade hands out allowances first, while baseline and credit certifies results afterward.