2012-04-30T04:00:00.000-07:00

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What is Carbon Trading?

Our planet's atmosphere is getting warmer rapidly and the average surface temperature of the earth is rising due to the greenhouse gases. According to the researchers the emissions from human activities is responsible for such unnatural change. By emissions we mean the emission of carbon dioxide into the atmosphere because of the burning of fossil fuel. This phenomena is popularly known as Global Warming which has become a deadly threat and a matter of worry as we are already aware of its after effects such as rising sea levels and disappearing low land article.

Many precautionary steps are being taken to reduce it as it is not possible to bring it to a complete hault. Carbon Trading is also one of the significant steps taken by the society to minimize the greenhouse effect. A significant step is taken by Kyoto Protocol in the form of carbon trading or emission trading to bring down the carbon level. Now the same carbon has become a product helping the traders, corporations and even the farmers who earn billions of money. It has turned into such an opportunity, of which people could not even imagine a decade ago. Carbon is traded just like securities and commodities.

What are carbon credits?

A limit or cap is set by a central authority on the amount of emissions of a pollutant that may be done. An emission permit is being issued or sold to the firms to represent the amount right of emitting the specific pollutant to a specific extent. These permits are known as carbon credits. One carbon credit is equivalent to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases.

How does the carbon trading mechanism work?

A few decades ago a debated started on how to protect the environment from getting more and more polluted. They arrived with two such ways in which the emissions could be reduced by the companies. Either they adopt new technologies or improve the existing technology and reduce the greenhouse gases or they can tie up with the developed countries to help them set up new technology which is more eco-friendly and help them earn credit.

Any company, factory or a farm-owner can get linked to United Nations Framework Convention on Climate Change to know the standard level of emissions which is suitable for its activity. The companies are required to hold a number of carbon credits equivalent to their emissions. The total number of emissions should not exceed the cap by making sure that their emissions are limited to that level only. In that way they are able to reduce their emissions. The companies who increase their emissions have to face penalty in the form of buying more carbon credits equivalent to the amount of extra emissions they are going to make. The companies left with the extra credits as a result of reduced emission can sell their credits in the market.

The companies or firms who need to increase their emissions must buy the emission permits from those who need to reduce their permits or need fewer permits.This exchange or transfer of permits from one hand to another is referred to as a trade. In this way, the buyer of the permits is paying a charge for increasing their emissions and the seller is being rewarded for reducing its emissions.

There are many active programs in several air pollutants such as European Union Emission Trading Scheme which is the largest for greenhouse gases working towards avoiding the dangerous change in the climate. In U.S. there is national market to reduce acid rain and many other markets in nitrogen oxides too, though U.S. has not signed the Kyoto Protocol. The market for the other pollutants seem to be very smaller.

There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint (emissions) on a voluntary basis. These carbon off setters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects.

The credits are being bought by the companies of the developed countries mostly european. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits.

Look out for other pages to know about the carbon trade exchanges.