Market and Investment

Carbon trading is a method adopted to decrease the carbon footprints of industrialized countries, and the method has gained wide approval throughout the world in recent years. Carbon trading is essentially a trade in carbon credits in which each credit certifies the owner to release one tonne of carbon dioxide and other greenhouse gases into the air, and it is the fundamental trading principle governing the cap-and-trade system as formulated in the Kyoto Protocol.

Global emission allotments have been restricted by the Kyoto protocol, and the caps are allocated as carbon credits to every operator, who gets a certain amount of these credits that can be consumed or traded in the market. Operators with greener technology generally do not consume all of their credits, and as a consequence, can sell these to those who foresee that they will be exceeding their allowances. As high-emission organizations are forced to compensate for their act, they are driven to opt for cleaner technologies.

So far market responses on carbon trading have been encouraging, with most large industries across the globe opting for this emission-lowering method. This is because such inter-company dealings help in their short-term and medium-term planning.

Figures provided by the World Bank’s Carbon Finance Unit confirm that the carbon trading business is growing at a very rapid rate every year. There was a 41% increase in the market between 2003 and 2004, and a staggering 240% increase 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 many organizations in the world. Despite being out of the Kyoto Protocol list of nations, many 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 sections of people have expressed reservation about the effectiveness of carbon trading. The stupendous growth in the carbon trading business indicates that companies throughout the world are in fact more willing to buy carbon credits instead of utilizing low emission energy options which has always been one of the objectives of carbon trading. Thus, carbon trading has been a topic of discussion in several parts of the world, and some specialists are of the opinion that options like taxation on extra carbon emissions is the more suited way to limit the greenhouse gas emissions.

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