Carbon Trading Market - Background And Trends

Carbon trading is a method adopted to decrease the carbon footprints of industrialized nations, and the method has gained wide approval across the world in recent times. Carbon trading involves the selling and purchase of carbon credits, where each credit permits the emission of one thousand kilos of carbon dioxide and other greenhouse gases to the buyer, and is the key component of the cap-and-trade system implemented in many countries which adhere to the Kyoto Protocol.

Global emission allowances have been capped by the Kyoto protocol, and the caps are allocated as carbon credits to every operator, who gets a particular amount of these credits that can be consumed or transacted in the market. Operators with more eco-friendly technology generally do not consume all of their credits, and as a consequence, can sell these to those who predict that they will be exceeding their allotments. High-emission operators are penalized for their high emissions by this monetary compensation for polluting the environment.

Market trends in carbon trading indicate that it has turned into the greenhouse gases emission-lowering method of choice for most big corporations throughout the globe. This is because such inter-company dealings help in their short-term and medium-term strategies.

If the statistics of the World Bank’s Carbon Finance Unit are to be believed, then carbon trading is increasing very rapidly with each passing year. The years 2003 and 2004 saw a trading growth of 41% in the market, while the increase 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 fetching good profits for several industries in the world. Even though the US did not participate in the Kyoto Protocol, many of its states and industries have embraced the carbon trading practice. 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 are not convinced about the effectiveness of carbon trading. As one of the goals of carbon trading is to encourage the development of greener, low-emission technologies, the immense increase in carbon trading is a cause of concern as it indicates that businesses are opting to spend more on the purchase of carbon credits instead of investing in greener technologies. Therefore certain groups are apprehensive of the long-term advantages of carbon trading, and some specialists have opined the imposition of carbon tax to be paid by negligent organizations as a better solution to greenhouse gas emissions.