Carbon Trading Market – Basics And Trends
Carbon trading came forth as a regulatory method to check CO2 emissions, and it has increasingly caught the attention of governments and industries across the world. Carbon trading is basically a trade in carbon credits in which every unit of credit certifies the owner to discharge 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.
According to the Kyoto protocol, a limit has been fixed on global emission levels, which are then apportioned into carbon credits, a particular number of which are allotted to each operator. Organizations that think they may cross the emission limits can purchase these credits from low-emission companies that have credits left with them because of adopting cleaner methods of doing business. High-emission operators are penalized for their high emissions by this penalty for polluting the atmosphere.
So far carbon trading has been a success, with market reports indicating that several large industries across the world are advocating this emission-lowering solution. This is because such inter-company transactions help in their short-term and medium-term strategies.
If the statistics of the World Bank’s Carbon Finance Unit are to be believed, then carbon trading is growing at a great rate with each passing year. There was a 41% growth in the market between 2003 and 2004, and a huge 240% rise between 2004 and 2005. The London based carbon finance market has also grown at an amazing rate, which clearly shows that the method of carbon trading is reaping good profits for several organizations in the world. Several states and industries in the US have also opted for carbon trading practices, even though the country is not a signatory to the Kyoto Protocol. In addition, the EU with its own carbon trading system has also been playing a major role in the carbon trading market.
However, there are certain groups who have criticised this policy. As one of the goals of carbon trading is to promote the development of greener, low-emission technologies, the exponential increase in carbon trading is a reason for worry as it points out that companies are choosing to spend more on the purchase of carbon credits instead of investing in greener technologies. Thus, carbon trading has been a matter of discussion in several parts of the world, and some experts are of the opinion that alternatives like taxation on extra carbon emissions is the more suited way to control the greenhouse gas emissions.
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