Carbon trading is a method adopted to reduce the carbon emissions by industrialized nations, and the method has gained wide acceptance across the world in recent years. Carbon trading involves the selling and buying of carbon credits, where each credit allows the emission of one tonne of carbon dioxide and other greenhouse gases to the buyer, and is the key component of the cap-and-trade system implemented in several countries which are bound by the Kyoto Protocol.
Global emission allotments have been restricted by the Kyoto protocol, and the caps are distributed as carbon credits to every operator, who gets a particular amount of these credits that can be used or traded in the market. Organizations that are left with extra credits due to their adoption of cleaner alternatives can sell credits to companies that will fall into the high-emission segment for exceeding their authorized limits. High-emission operators are penalized for their excessive emissions by this penalty for polluting the atmosphere.
So far carbon trading has been an effective system, with market reports indicating that most large companies throughout the world are supporting this emission-lowering system. This is because such reciprocal trade makes their near future and medium-term planning more accommodating.
Carbon trading is increasing exponentially each year, according to the figures reported by the World Bank’s Carbon Finance Unit. There has been an amazing increase 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 makes it evident that the method of carbon trading is fetching good profits for several industries in the world. Several states and industries in the US have also adopted carbon trading practices, even though the country 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, some sections of people have expressed reservation about the effectiveness of carbon trading. The immense growth in the carbon trading business suggests that organizations across the globe are in fact more willing to purchase carbon credits rather than investing in low emission energy alternatives which has always been one of the objectives of carbon trading. Hence certain groups are apprehensive of the long-term advantages of carbon trading, and some specialists ave opined the imposition of carbon tax to be paid by negligent organizations as a more appropriate solution to greenhouse gas emissions.
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