The Booming Carbon Trading Market

By Anthony Lee

Carbon trading came forth as a regulatory mechanism to check CO2 emissions, and it has increasingly caught the attention of governments and organizations throughout the globe. Carbon trading involves the selling and buying of carbon credits, where each credit allows the emission of one thousand kilos of carbon dioxide and other greenhouse gases to the buyer, and is the primary element of the cap-and-trade system implemented in many countries which adhere to 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 gets a certain amount of these credits that can be consumed or transacted in the market. Companies that think they may cross the emission limits can buy these credits from low-emission companies that have credits left with them because of adopting cleaner methods of doing business. High-emission operators are discouraged for their high emissions by this penalty for pollution of the environment.

So far market responses on carbon trading have been encouraging, with most large industries throughout the globe embracing this emission-lowering mechanism. This is because carbon trading gives them flexibility in their short-term and medium-term strategies.

Figures furnished by the World Bank’s Carbon Finance Unit confirm that the carbon trading business is increasing at a very fast rate every year. There was a 41% growth in the market between 2003 and 2004, and a huge 240% growth between 2004 and 2005. The carbon finance market, centred in London, has also seen immense growth, which clearly suggests that the exchange of carbon credits has turned out to be a profitable business for many organizations. 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. Besides, 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 encourage the development of more eco-friendly, low-emission technologies, the exponential increase in carbon trading is a reason for worry as it indicates that businesses are choosing to spend more on the buying of carbon credits rather than investing in greener technologies. Thus, carbon trading has been a topic of discussion in many parts of the world, and some specialists are of the belief that alternatives like taxation on extra carbon emissions is the more suited way to regulate the greenhouse gas emissions.

Learn more about Carbon Trading and Carbon Offset and get a deeper understanding on how you can help in saving the environment.

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