Carbon trading is a method adopted to reduce the carbon emissions by industrialized countries, and the method has gained wide acceptance throughout the world in recent years. Carbon trading is essentially a trade in carbon credits in which each credit permits the buyer 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.
Global emission allowances have been capped by the Kyoto protocol, and the caps are allocated as carbon credits to each operator, who receives a certain amount of these credits that can be consumed or traded in the market. Companies that are left with a stock of credits due to their adherence to cleaner alternatives can sell credits to companies that will fall into the high-emission segment for going above their authorized limits. High-emission operators are discouraged for their excessive emissions by this monetary compensation for pollution of the environment.
Market trends in carbon trading suggest that it has turned into the greenhouse gases emission-lowering method of choice for most big corporations across the world. This is because carbon trading allows them flexibility in their short-term and medium-term strategies.
Carbon trading is rising exponentially every year, according to the statistics reported by the World Bank\’s Carbon Finance Unit. The years 2003 and 2004 saw a trading increase of 41% in the market, while the growth in the following cycle has been an incredible 240%. Growth in the London based carbon finance market has also been very impressive, proving the fact that carbon trading is clearly a profitable business strategy for many companies. Despite being out of the Kyoto Protocol list of countries, several states and industries in the US have welcomed the carbon credits scheme and have adopted it in their business. Additionally, the EU, which has its own carbon trading market, has also been very active in this global trading market.
However, some sections of people are not convinced about the effectiveness of carbon trading. The stupendous growth in the carbon trading business indicates that companies across the globe are in fact more willing to buy carbon credits instead of utilizing low emission energy alternatives which has always been one of the objectives of carbon trading. Therefore the effectiveness of carbon trading has remained open to speculation, with some environment experts suggesting imposition of carbon tax to be a better substitute for achieving an emission-free environment.
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