Carbon trading was born out of the necessity to cut down on greenhouse gas emissions, and has become increasingly popular throughout the world in recent years. Carbon trading is basically a trade in carbon credits in which each credit permits the owner to discharge one tonne of carbon dioxide and other greenhouse gases into the atmosphere, and it is the fundamental trading principle governing the cap-and-trade system as devised in the Kyoto Protocol.

Global emission allotments have been restricted by the Kyoto protocol, and the caps are distributed as carbon credits to every operator, who gets a particular amount of these credits that can be consumed or traded in the market. Companies that are left with extra credits due to their adherence to greener alternatives can sell credits to companies that will fall into the high-emission segment for exceeding their authorized limits. As high-emission organizations are made to pay for their act, they are driven to opt for greener technologies.

Market trends in carbon trading suggest that it has become the greenhouse gases emission-lowering mechanism of choice for most big industries throughout the globe. This is because carbon trading gives them flexibility in their short-term and medium-term strategies.

Carbon trading is increasing exponentially each year, as per the figures reported by the World Bank’s Carbon Finance Unit. There was a 41% rise in the market between 2003 and 2004, and a huge 240% growth between 2004 and 2005. The London based carbon finance market has also grown at an amazing rate, which clearly shows that the business of carbon trading is reaping good profits for many industries in the world. Despite being outside the Kyoto Protocol list of countries, many states and industries in the US have welcomed the carbon credits scheme and have adopted it in their business. Besides, the EU with its own carbon trading system has also been performing a key role in the carbon trading market.

However, this system has not received a favourable response from a few parties. Carbon trading is in fact aimed at causing high-emission companies invest in more eco-friendly technologies and thereby encouraging development of low emission energy alternatives, which is not materializing because errant organisations seem to be more interested in buying carbon credits instead of opting for eco-friendly technologies. Therefore some groups are apprehensive of the long-term advantages of carbon trading, and some experts ave 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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