Market Trends In Carbon Emissions Trading
The carbon trading concept came out of the need to cut down on greenhouse gas emissions, and has become increasingly popular across the globe in the last few years. Carbon trading involves the sale and buying of carbon credits, where each credit permits the emission of one tonne of carbon dioxide and other greenhouse gases to the buyer, and is the key element of the cap-and-trade system in use in several countries which adhere to the Kyoto Protocol.
As per the Kyoto protocol, a limit has been set on global emission levels, which are then distributed into carbon credits, a particular number of which are granted to each member. Companies that have a stock of credits due to their adherence to greener alternatives can sell credits to organizations that will fall into the high-emission category for going above their authorized limits. As high-emission organizations are forced to pay for their act, they are driven to look for cleaner technologies.
So far market responses on carbon trading have been encouraging, with most large organizations across the globe opting for this emission-lowering mechanism. This is because such inter-company dealings help in their short-term and medium-term strategies.
Carbon trading is rising exponentially each year, as per the statistics reported by the World Bank’s Carbon Finance Unit. There was a 41% increase in the market between 2003 and 2004, and a staggering 240% growth between 2004 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 fetching good profits for several industries in the world. Despite being outside the Kyoto Protocol list of countries, several states and industries in the US have welcomed the carbon credits scheme and have incorporated 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, some groups of people are not convinced about the effectiveness of carbon trading. Carbon trading is in fact aimed at making high-emission companies invest in greener technologies and thereby promoting development of low emission energy alternatives, which is not materializing because defaulting companies seem to be keener on buying carbon credits rather than opting for eco-friendly technologies. Hence certain groups are doubtful of the long-term advantages of carbon trading, and some experts have opined the levying of carbon tax to be paid by negligent companies as a more appropriate solution to greenhouse gas emissions.
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