Carbon trading is a method adopted to decrease the carbon footprints of industrialized nations, and the method has gained wide acceptance throughout the world in recent times. Carbon trading is essentially a trade in carbon credits in which every unit of credit allows the buyer to release one tonne of carbon dioxide and other greenhouse gases into the atmosphere, and it is the fundamental trading principle governing the cap-and-trade system as formulated in the Kyoto Protocol.
As per the Kyoto protocol, a cap has been set on global emission levels, which are then apportioned into carbon credits, a particular number of which are granted to each member. Organizations that think they may go beyond the emission limits can purchase these credits from low-emission companies that have credits left with them because of adopting eco-friendly methods of doing business. As high-emission organizations are forced to pay for their act, they are driven to look for greener technologies.
So far carbon trading has been an effective system, with market responses suggesting that most large industries across the globe are supporting this emission-lowering solution. This is because such reciprocal trade makes their near future and medium-term planning more accommodating.
If the statistics of the World Bank’s Carbon Finance Unit are to be believed, then carbon trading is increasing very rapidly with each passing year. The years 2003 and 2004 saw a trading growth of 41% in the market, while the growth in the following cycle has been an unprecedented 240%. Growth in the London centred carbon finance market has also been very remarkable, establishing the fact that carbon trading is turning out to be a profitable business strategy for many organizations. Despite being outside the Kyoto Protocol list of countries, several states and industries in the US have approved of the carbon credits scheme and have incorporated it in their business. Further, the EU, which has its own carbon trading system, has also been very active in this global trading market.
However, there are certain groups who have criticised this system. Carbon trading is in fact 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 keener on buying carbon credits instead of opting for eco-friendly technologies. Hence certain groups are apprehensive of the long-term benefits of carbon trading, and some experts have suggested the imposition of carbon tax to be paid by errant companies as a better solution to greenhouse gas emissions.
Learn more about carbon credits and carbon offset and get a deeper understanding on how you can help in saving the environment.
