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. In carbon trading, carbon credits are purchased and sold by companies and other entities across the globe under the innovative cap-and-trade system, where each credit permits the release of an equivalent of one tonne of carbon dioxide and other greenhouse gases to the atmosphere.
The Kyoto protocol has fixed a limit on how much emission can be allowed globally, which is later converted into carbon credits, and each operator receives a certain number of these credits. Organizations that are left with a stock of credits due to their adherence to greener alternatives can sell credits to companies that will fall into the high-emission segment for going above their authorized limits. By having to make payment of an extra sum to be allowed to make those emissions, a de-motivating factor is created for high-emission operators.
So far carbon trading has been an effective system, with market reports indicating that most large companies throughout the world are advocating this emission-lowering solution. This is because such inter-company transactions help in their short-term and medium-term planning.
Statistics furnished by the World Bank’s Carbon Finance Unit reaffirm that the carbon trading business is increasing at a very rapid 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 carbon finance market, centred in London, has also seen immense growth, which clearly suggests that the trade of carbon credits is proving to be a profitable business for many companies. Several states and industries in the US have also opted for carbon trading practices, even though the nation is not a signatory to the Kyoto Protocol. Further, the EU, which has its own carbon trading system, has also been very active in this global trading market.
However, there are some groups who have criticised this policy. As one of the goals of carbon trading is to promote the adoption of more eco-friendly, low-emission technologies, the immense increase in carbon trading is a cause of concern as it points out that companies are choosing to spend more on the buying of carbon credits rather than investing in more eco-friendly technologies. Thus, carbon trading has been a topic of discussion in several parts of the world, and some experts are of the belief that alternatives like taxation on extra carbon emissions is the more suited way to regulate the greenhouse gas emissions.


