The Booming Carbon Trading Market
Friday, January 29th, 2010Carbon trading is a method adopted to reduce the carbon emissions by industrialized nations, and the method has received wide acceptance across the world in recent years. Carbon trading is essentially a trade in carbon credits in which every unit of credit certifies 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.
The Kyoto protocol has put a cap on how much discharge can be permitted globally, which is later transformed into carbon credits, and each operator receives a certain number of these credits. Organizations that have extra credits due to their adoption of cleaner alternatives can sell credits to organizations that will fall into the high-emission category for going above their authorized limits. By having to pay an extra sum to be permitted to make those emissions, a de-motivating factor is created for high-emission operators.
So far carbon trading has been a success, with market reports indicating that several large companies across the globe are supporting this emission-lowering system. This is because carbon trading gives them flexibility in their short-term and medium-term strategies.
If the statistics of the World Bank’s Carbon Finance Unit are to be considered, then carbon trading is growing at a great rate with each passing year. There was a 41% rise in the market between 2003 and 2004, and a staggering 240% growth between 2004 and 2005. Growth in the London based carbon finance market has also been very remarkable, establishing the fact that carbon trading is turning out to be a profitable business strategy for a number of organizations. Even though the US did not participate in the Kyoto Protocol, many of its states and organizations 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, there are some groups who have criticised this policy. Carbon trading is in fact targeted at making high-emission companies invest in more eco-friendly technologies and thereby promoting development of low emission energy alternatives, which is not materializing because errant organisations seem to be keener on buying carbon credits rather than choosing eco-friendly technologies. Hence, carbon trading has been a topic of debate in many parts of the world, and some experts are of the opinion that options like taxation on excessive carbon emissions is the more suited way to limit the greenhouse gas emissions.
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