Carbon trading emerged as a regulatory method to check CO2 emissions, and it has increasingly caught the attention of governments and organizations across the world. Carbon trading involves the selling and buying of carbon credits, where every single credit allows the emission of one thousand kilos of carbon dioxide and other greenhouse gases to the purchaser, and is the key element of the cap-and-trade system in use in many countries which adhere to the Kyoto Protocol.
Global emission allotments have been restricted by the Kyoto protocol, and the caps are distributed as carbon credits to each operator, who gets a certain amount of these credits that can be consumed or traded in the market. Companies that feel they may go beyond the emission limits can buy these credits from low-emission industries that have extra credits with them because of opting for eco-friendly methods of doing business. By having to make payment of an additional sum to be allowed to make those discharges, a disincentive is created for high-emission operators.
Market trends in carbon trading suggest that it has become the greenhouse gases emission-lowering method of choice for most big corporations across the world. This is because such quid pro quo trade makes their near future and medium-term planning more accommodating.
Figures furnished by the World Bank’s Carbon Finance Unit reaffirm that the carbon trading business is growing at a very fast rate every year. The years 2003 and 2004 witnessed a trading increase of 41% in the market, while the growth in the following cycle has been an unprecedented 240%. The London based carbon finance market has also grown at a remarkable rate, which clearly shows that the method of carbon trading is reaping good profits for many industries in the world. 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 adopted it in their business. The EU too, with its own carbon trading system, has been actively engaged in carbon trading for a few years now.
However, some groups of people have expressed reservation about the effectiveness of carbon trading. Carbon trading is in fact aimed at making high-emission organizations invest in greener technologies and thereby promoting development of low emission energy alternatives, which is not happening because defaulting organisations seem to be more interested in buying carbon credits instead of opting for eco-friendly technologies. Therefore the efficacy of carbon trading has been open to debate, with some environment experts suggesting imposition of carbon tax to be a better alternative for achieving a clean environment.
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