Carbon trading is a method adopted to reduce the carbon emissions by industrialized countries, and the method has received wide acceptance across the world in recent times. Carbon trading involves the sale and purchase of carbon credits, where each credit permits the emission of one tonne of carbon dioxide and other greenhouse gases to the purchaser, and is the primary component of the cap-and-trade system in use in several countries which are bound by the Kyoto Protocol.
Global emission allotments have been restricted by the Kyoto protocol, and the caps are allocated as carbon credits to every operator, who receives a certain amount of these credits that can be consumed or transacted in the market. Operators with greener technology often do not use up all of their credits, and as a consequence, can sell these to those who foresee that they will be exceeding their allowances. As high-emission organizations are forced to pay for their act, they are driven to opt for greener technologies.
So far carbon trading has been a success, with market reports indicating that most large industries throughout the globe are supporting this emission-lowering system. This is because carbon trading allows them flexibility in their short-term and medium-term strategies.
Statistics provided by the World Bank\’s Carbon Finance Unit confirm that the carbon trading business is increasing at a very fast rate every year. There has been an amazing increase from 41% to 240% in the carbon trading market between the years 2003 and 2005. Growth in the London centred carbon finance market has also been very impressive, proving the fact that carbon trading is clearly a profitable business strategy 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. The EU too, with its own carbon trading system, has been actively involved in carbon trading for a few years now.
However, this system has not received a positive reaction from a few parties. Carbon trading is actually targeted at making high-emission companies invest in more eco-friendly technologies and thereby promoting development of low emission energy substitutes, which is not happening because defaulting companies seem to be more interested in buying carbon credits instead of opting for eco-friendly technologies. Hence certain groups are doubtful of the long-term benefits of carbon trading, and some specialists ave opined the levying of carbon tax to be paid by errant companies as a more appropriate solution to greenhouse gas emissions.
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