Carbon trading was born out of the need to decrease greenhouse gas emissions, and has become increasingly popular throughout the world in recent years. In carbon trading, carbon credits are purchased and sold by industries and other entities across the world under the innovative cap-and-trade system, where one credit permits the emission of an equivalent of one tonne of carbon dioxide and other greenhouse gases to the environment.
According to the Kyoto protocol, a limit has been fixed on global emission levels, which are then distributed into carbon credits, a certain number of which are allotted to each operator. Organizations that feel they may cross the emission limits can purchase these credits from low-emission companies that have extra credits with them because of opting for eco-friendly methods of doing business. By having to make payment of an extra sum to be allowed to make those discharges, a de-motivating factor is made for high-emission operators.
So far carbon trading has been a success, with market reports indicating that most large companies across the world are supporting this emission-lowering solution. This is because carbon trading allows them flexibility in their short-term and medium-term strategies.
Figures furnished by the World Bank’s Carbon Finance Unit reaffirm that the carbon trading business is growing at a very rapid rate every year. The years 2003 and 2004 witnessed a trading growth of 41% in the market, while the growth in the following cycle has been an incredible 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. Even though the US did not participate in the Kyoto Protocol, many of its states and organizations have taken to the carbon trading practice. In addition, the EU with its own carbon trading system has also been performing a major role in the carbon trading market.
However, some sections of people have expressed reservation about the effectiveness of carbon trading. As one of the purposes of carbon trading is to encourage the development of more eco-friendly, low-emission technologies, the immense increase in carbon trading is a cause of concern as it points out that companies are opting to spend more on the buying of carbon credits instead of investing in more eco-friendly technologies. Therefore some groups are doubtful of the long-term advantages of carbon trading, and some specialists have opined the imposition of carbon tax to be paid by errant organizations as a better solution to greenhouse gas emissions.
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