The carbon trading concept came out of the need to cut down on greenhouse gas emissions, and has become increasingly popular across the globe in the last few years. Carbon trading is basically a trade in carbon credits in which each credit allows the owner to release one tonne of carbon dioxide and other greenhouse gases into the atmosphere, and it is the basic trading principle governing the cap-and-trade system as devised in the Kyoto Protocol.
The Kyoto protocol has fixed a cap on how much emission can be allowed globally, which is later transformed into carbon credits, and each operator receives a particular amount of these credits. Companies that have a stock of credits due to their adherence to cleaner alternatives can sell credits to companies that will fall into the high-emission category for going above their authorized limits. As high-emission organizations are made to compensate for their act, they are driven to opt for cleaner technologies.
So far market responses on carbon trading have been positive, with most big organizations across the globe embracing this emission-lowering mechanism. This is because such quid pro quo trade makes their near future and medium-term planning more flexible.
Figures furnished by the World Bank’s Carbon Finance Unit confirm that the carbon trading business is growing at a very fast rate every year. There has been a great growth from 41% to 240% in the carbon trading market between the years 2003 and 2005. The London based carbon finance market has also grown at a remarkable rate, which clearly shows that the method of carbon trading is fetching good profits for several industries in the world. Even though the US did not sign the Kyoto Protocol, many of its states and industries have embraced the carbon trading practice. Further, the EU, which has its own carbon trading system, has also been very active in this global trading market.
However, some sections of people have expressed reservation about the effectiveness of carbon trading. Carbon trading is in fact aimed at making high-emission organizations invest in more eco-friendly technologies and thereby promoting development of low emission energy alternatives, which is not happening because errant companies seem to be keener on buying carbon credits rather than choosing eco-friendly technologies. Hence the effectiveness of carbon trading has remained open to speculation, with some environment experts suggesting imposition of carbon tax to be a better substitute for attaining an emission-free environment.
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