Guide to Carbon Trading
The Kyoto Protocol has laid down specific guidelines about the amount
of carbon emission that each developed nation can release into the
atmosphere. As we all know, carbon emission is the key factor to global
warming and huge climatic changes all around the world. As such, this
protocol is aimed to reduce the harmful ‘greenhouse effects.’
In order to deal with the problem of carbon emission, a Carbon Trading
scheme has been introduced where buyers and sellers of carbon credits
come together with standardized rules of trade. Since each firm in the
developed nations have specific quotas on how much carbon footprint they
can leave behind, they can buy carbon credits. This means that if they
end up producing more carbon than they should have, they can purchase
carbon credits from some other firm, thereby keeping the carbon emission
balance intact.
Who can buy and sell carbon credits?
Businesses that emits more than their assigned quote of carbon
dioxide into the atmosphere can buy carbon credits. On the other hand,
businesses that have reduced their carbon emission can sell their quota
to other emitters. Entities that manage forests of other agricultural
lands may also be in a position to sell carbon credits.
Benefits of Carbon Trading
The system is beneficial to both developed and developing nations.
This is because; the carbon credits are very highly priced. As such,
most developing nations that have surplus carbon credits can sell their
carbon units to other countries. They can use this extra income to
stimulate their own economic growth.
At the same time, they can now achieve the Kyoto commitments at a very
low cost. This is because they can use the money from trading the carbon
credits to invest in cleaner technology.
Basically, carbon trading scheme was introduced so that the companies
that emit more than the assigned quota of carbon incur high costs while
having to buy carbon credit. This will give them an incentive to be more
environmentally efficient. At the same time, it will also augment the
income of those entities that manage to emit less than the assigned
carbon credit.
Today, the Carbon Emission Trading makes up the bulk of emissions
trading. World Bank's Carbon Finance Unit shows that 374 million metric
tonnes of carbon dioxide equivalent were exchanged in the year 2005,
which is a 240% increase from 2004. |
