Carbon trading came forth as a regulatory method to check CO2 emissions, and it has increasingly caught the attention of governments and organizations throughout the world. Carbon trading is essentially a trade in carbon credits in which each credit allows the purchaser 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 formulated in the Kyoto Protocol.
Global emission allotments have been restricted by the Kyoto protocol, and the caps are allocated as carbon credits to each operator, who receives a certain amount of these credits that can be consumed or transacted in the market. Operators with more eco-friendly technology generally do not consume all of their credits, and as a consequence, can sell these to those who predict that they will be going beyond their allowances. High-emission operators are penalized for their high emissions by this monetary compensation for polluting the atmosphere.
Market trends in carbon trading suggest that it has turned into the greenhouse gases emission-lowering method of choice for most big corporations across the world. This is because such inter-company dealings help in their short-term and medium-term strategies.
If the figures of the World Bank’s Carbon Finance Unit are to be believed, then carbon trading is increasing very rapidly with each passing year. There has been a great increase from 41% to 240% in the carbon trading market between the years 2003 and 2005. Growth in the London based carbon finance market has also been very impressive, establishing the fact that carbon trading is turning out to be a profitable business strategy for many companies. Despite being out of the Kyoto Protocol list of nations, several states and industries in the US have approved of the carbon credits scheme and have incorporated it in their business. Additionally, the EU, which has its own carbon trading system, has also been very participative in this global trading market.
However, there are certain groups who have criticised this system. Carbon trading is actually targeted at making high-emission companies invest in greener technologies and thereby encouraging development of low emission energy alternatives, which is not materializing because defaulting organisations seem to be keener on buying carbon credits rather than choosing eco-friendly technologies. Hence, carbon trading has been a topic of debate in several parts of the world, and some experts are of the opinion that alternatives like taxation on extra carbon emissions is the better way to regulate the greenhouse gas emissions.
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