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Carbon trading is a method adopted to reduce the carbon footprints of industrialized countries, and the method has gained wide approval across the world in recent times. In carbon trading, carbon credits are bought and sold by industries and organizations throughout the globe under the innovative cap-and-trade system, where each credit permits the emission of an equivalent of one tonne of carbon dioxide and other greenhouse gases to the environment.

The Kyoto protocol has put a limit on how much discharge can be allowed globally, which is later transformed into carbon credits, and each operator receives a certain amount of these credits. Operators with greener technology often do not use up all of their credits, and as a result, can sell these to those who predict that they will be going beyond their allotments. By having to make payment of an extra sum to be permitted 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 responses indicating that several large companies throughout the globe are advocating this emission-lowering system. This is because such quid pro quo trade makes their near future and medium-term planning more accommodating.

Carbon trading is rising exponentially each year, according to the figures reported by the World Bank’s Carbon Finance Unit. The years 2003 and 2004 witnessed a trading growth of 41% in the market, while the increase in the following cycle has been an unprecedented 240%. Growth in the London based carbon finance market has also been very remarkable, proving the fact that carbon trading is clearly a successful business strategy for many companies. Several states and industries in the US have also adopted 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 some years now.

However, this system has not seen a favourable response from some parties. Carbon trading is in fact targeted at causing high-emission organizations invest in more eco-friendly technologies and thereby encouraging development of low emission energy alternatives, which is not happening because defaulting companies seem to be keener on buying carbon credits instead of choosing eco-friendly technologies. Hence, carbon trading has been a topic of discussion in several parts of the world, and some experts are of the belief that options like taxation on excessive carbon emissions is the more suited way to control the greenhouse gas emissions.

Discover more about carbon credits and carbon offset and get a deeper understanding on how you can help in saving the environment.

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