Carbon trading was born out of the need to cut down on greenhouse gas emissions, and has become more and more popular throughout the world in recent years. Carbon trading involves the sale and buying of carbon credits, where each credit allows the emission of one thousand kilos of carbon dioxide and other greenhouse gases to the purchaser, and is the key element of the cap-and-trade system implemented in many countries which are bound by 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 certain amount of these credits that can be used or traded in the market. 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. High-emission operators are penalized for their high emissions by this penalty for pollution of the atmosphere.

So far carbon trading has been a success, with market responses suggesting that most large companies across the globe are supporting this emission-lowering solution. This is because such reciprocal trade makes their near future and medium-term planning more flexible.

Carbon trading is increasing exponentially every year, according to the figures reported by the World Bank’s Carbon Finance Unit. The years 2003 and 2004 witnessed a trading increase of 41% in the market, while the increase in the following cycle has been an unprecedented 240%. The carbon finance market, based in London, has also seen immense growth, which clearly suggests that the trade of carbon credits has turned out to be a profitable business for many organizations. Even though the US did not sign the Kyoto Protocol, many of its states and organizations have embraced the carbon trading practice. In addition, the EU with its own carbon trading system has also been performing a key role in the carbon trading market.

However, there are some groups who have criticised this system. Carbon trading is actually aimed at causing high-emission organizations invest in greener technologies and thereby promoting development of low emission energy alternatives, which is not materializing because defaulting organisations seem to be keener on buying carbon credits instead of opting for 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 extra carbon emissions is the better way to limit the greenhouse gas emissions.

Learn more about Carbon Trading and Carbon Offset and get a deeper understanding on how you can help in saving the environment.