The Booming Carbon Trading Market

The carbon trading concept came out of the necessity to cut down on greenhouse gas emissions, and has become increasingly popular throughout the world in the last few years. Carbon trading involves the sale and purchase of carbon credits, where each credit allows the emission of one tonne of carbon dioxide and other greenhouse gases to the purchaser, and is the primary element of the cap-and-trade system in use in many countries which adhere to the Kyoto Protocol.

According to the Kyoto protocol, a cap has been set on global emission allowances, which are then apportioned into carbon credits, a certain number of which are granted to each member. Organizations that have extra credits due to their adherence to cleaner alternatives can sell credits to organizations that will fall into the high-emission segment for exceeding their authorized limits. As high-emission organizations are made to compensate for their act, they are driven to opt for cleaner technologies.

So far market responses on carbon trading have been positive, with most large organizations throughout the globe opting for this emission-lowering mechanism. This is because such quid pro quo trade makes their short-term and medium-term planning more accommodating.

Figures provided by the World Bank’s Carbon Finance Unit confirm that the carbon trading business is increasing at a very rapid rate every year. There has been a great growth from 41% to 240% in the carbon trading market between the years 2003 and 2005. The London based carbon finance market has also grown at a remarkable rate, which makes it evident that the method of carbon trading is reaping good profits for several industries in the world. Many states and industries in the US have also opted for carbon trading practices, even though the nation is not a signatory to the Kyoto Protocol. Besides, the EU with its own carbon trading system has also been performing a key role in the carbon trading market.

However, there are certain groups who have criticised this policy. As one of the goals of carbon trading is to encourage the adoption of more eco-friendly, low-emission technologies, the exponential increase in carbon trading is a cause of concern as it points out that businesses are choosing to spend more on the buying of carbon credits instead of investing in more eco-friendly technologies. Hence certain groups are doubtful of the long-term benefits of carbon trading, and some experts have suggested the levying of carbon tax to be paid by errant companies as a more appropriate solution to greenhouse gas emissions.