Carbon trading emerged as a regulatory mechanism to check CO2 emissions, and it has increasingly caught the attention of governments and organizations across the world. Carbon trading is basically a trade in carbon credits in which each credit allows the buyer to release one tonne of carbon dioxide and other greenhouse gases into the air, and it is the basic trading principle governing the cap-and-trade system as formulated in the Kyoto Protocol.
Global emission allowances have been capped by the Kyoto protocol, and the caps are allocated as carbon credits to each operator, who gets a particular amount of these credits that can be used or traded in the market. Companies that think they may go beyond the emission limits can buy these credits from low-emission companies that have extra credits with them because of adopting cleaner methods of doing business. As high-emission companies are made to compensate for their act, they are driven to opt for greener technologies.
So far carbon trading has been a success, with market responses suggesting that several large companies across the world are advocating this emission-lowering solution. This is because such reciprocal trade makes their near future and medium-term planning more accommodating.
Carbon trading is increasing exponentially each year, according to the figures reported by the World Bank's Carbon Finance Unit. There has been a great increase from 41% to 240% in the carbon trading market between the years 2003 and 2005. The carbon finance market, based in London, has also seen stupendous growth, which clearly indicates that the exchange of carbon credits has turned out to be a profitable business for many organizations. Despite being outside the Kyoto Protocol list of nations, several states and industries in the US have welcomed the carbon credits scheme and have incorporated it in their business. In addition, the EU with its own carbon trading system has also been playing a major role in the carbon trading market.
However, some groups of people are not convinced about the effectiveness of carbon trading. As one of the purposes of carbon trading is to encourage the development of greener, low-emission technologies, the exponential increase in carbon trading is a cause of concern as it points out that companies are choosing to spend more on the purchase of carbon credits instead of investing in greener technologies. Therefore the efficacy of carbon trading has remained open to debate, with some environment experts suggesting imposition of carbon tax to be a more suited substitute for attaining a clean environment.
Global emission allowances have been capped by the Kyoto protocol, and the caps are allocated as carbon credits to each operator, who gets a particular amount of these credits that can be used or traded in the market. Companies that think they may go beyond the emission limits can buy these credits from low-emission companies that have extra credits with them because of adopting cleaner methods of doing business. As high-emission companies are made to compensate for their act, they are driven to opt for greener technologies.
So far carbon trading has been a success, with market responses suggesting that several large companies across the world are advocating this emission-lowering solution. This is because such reciprocal trade makes their near future and medium-term planning more accommodating.
Carbon trading is increasing exponentially each year, according to the figures reported by the World Bank's Carbon Finance Unit. There has been a great increase from 41% to 240% in the carbon trading market between the years 2003 and 2005. The carbon finance market, based in London, has also seen stupendous growth, which clearly indicates that the exchange of carbon credits has turned out to be a profitable business for many organizations. Despite being outside the Kyoto Protocol list of nations, several states and industries in the US have welcomed the carbon credits scheme and have incorporated it in their business. In addition, the EU with its own carbon trading system has also been playing a major role in the carbon trading market.
However, some groups of people are not convinced about the effectiveness of carbon trading. As one of the purposes of carbon trading is to encourage the development of greener, low-emission technologies, the exponential increase in carbon trading is a cause of concern as it points out that companies are choosing to spend more on the purchase of carbon credits instead of investing in greener technologies. Therefore the efficacy of carbon trading has remained open to debate, with some environment experts suggesting imposition of carbon tax to be a more suited substitute for attaining a clean environment.
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