Market Trends In Carbon Emissions Trading

Article Written By: Edmon Lee

Carbon trading was born out of the necessity to decrease greenhouse gas emissions, and has become increasingly popular throughout the world in the last few years. Carbon trading is basically a trade in carbon credits in which each credit certifies the owner to discharge one tonne of carbon dioxide and other greenhouse gases into the atmosphere, and it is the basic 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 allowed globally, which is later transformed into carbon credits, and each operator receives a particular amount of these credits. Companies that are left with extra credits due to their adherence to greener alternatives can sell credits to companies that will fall into the high-emission category for exceeding their authorized limits. As high-emission organizations are made to pay for their act, they are driven to look for greener technologies.

So far market reports on carbon trading have been encouraging, with most big industries across the world opting for this emission-lowering method. This is because carbon trading gives them flexibility in their short-term and medium-term strategies.

Carbon trading is rising exponentially every year, as per the figures reported by the World Bank's Carbon Finance Unit. There has been an amazing increase from 41% to 240% in the carbon trading market between the years 2003 and 2005. The carbon finance market, centred in London, has also seen immense growth, which clearly suggests that the trade of carbon credits is proving to be a profitable business for many companies. Despite being outside 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 involved in carbon trading for some years now.

However, there are certain groups who have criticised this policy. As one of the purposes of carbon trading is to encourage the development of greener, low-emission technologies, the immense increase in carbon trading is a reason for worry as it indicates that companies are opting to spend more on the buying of carbon credits instead of investing in more eco-friendly technologies. Thus, carbon trading has been a matter of discussion in many parts of the world, and some experts are of the opinion that alternatives like taxation on excessive carbon emissions is the more suited way to regulate the greenhouse gas emissions.

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