CarbonFeet

The carbon trading concept came out of the necessity to decrease greenhouse gas emissions, and has become increasingly popular throughout the world in recent years. Carbon trading involves the sale and purchase of carbon credits, where each credit permits the emission of one thousand kilos of carbon dioxide and other greenhouse gases to the buyer, and is the primary component of the cap-and-trade system in use in many countries which are bound by the Kyoto Protocol.

The Kyoto protocol has put a limit on how much discharge can be permitted globally, which is later transformed into carbon credits, and each operator gets a particular number of these credits. Companies that have extra credits due to their adoption of greener alternatives can sell credits to companies that will fall into the high-emission segment for going above their authorized limits. High-emission operators are penalized for their high emissions by this monetary compensation for polluting the atmosphere.

So far market responses on carbon trading have been encouraging, with most large industries throughout the globe opting for this emission-lowering mechanism. This is because such inter-company dealings help in their short-term and medium-term strategies.

Statistics furnished by the World Bank’s Carbon Finance Unit confirm that the carbon trading business is growing at a very fast rate every year. There was a 41% increase in the market between 2003 and 2004, and a huge 240% rise between 2004 and 2005. The carbon finance market, based in London, has also seen stupendous growth, which clearly suggests that the trade of carbon credits is proving to be a profitable business for many organizations. Despite being outside the Kyoto Protocol list of nations, several states and industries in the US have welcomed the carbon credits scheme and have adopted it in their business. In addition, the EU with its own carbon trading system has also been playing a major role in the carbon trading market.

However, this system has not seen a favourable response from some parties. The stupendous growth in the carbon trading business suggests that organizations across the globe are actually more eager to purchase carbon credits rather than investing in low emission energy alternatives which has always been one of the objectives of carbon trading. Therefore some groups are doubtful of the long-term advantages of carbon trading, and some specialists have opined the imposition of carbon tax to be paid by errant companies as a better solution to greenhouse gas emissions.

Considering the growing concern about global warming and greater carbon emissions into the atmosphere, governments and other agencies are looking for viable alternatives to reduce pollution. Carbon offset and carbon trading are among the most effective methods being adopted for attaining this.

Businesses purchase carbon credits that are bought and sold in the market in the carbon trading model. These credits determine the amount of greenhouse gases that organizations can emit above their allotted quota without paying a fine.

The primary advantage of the carbon trading concept is the encouragement that it gives for emitting less amounts of gases. The purpose is to make companies realize that the price of carbon credits is a lot higher than the expenditure on adopting eco-friendly ways of doing business. If the firm is made to shell out money for emitting the gases then it would attempt to make use of greener techniques to score over other companies. As more and more companies adopt this approach, the total emission levels across the globe will decrease progressively, thereby saving the environment.

Another important advantage of carbon trading is that it works on an open market system where any company can purchase or sell carbon credits. As it does not involve any direct government interference to impose fines or to make local regulations, this method is more successful.

The greatest disadvantage of carbon trading is absence of a comprehensive and structured international system for its trade. As almost all of the trading happens in the global markets, it is hard for some local companies to follow this system.

There is some resistance from a few organizations towards this method as the costs incurred during carbon trading cannot be passed on to the customers. In addition, it is quite tough for small businesses to get the sophisticated machinery or devise new means to lower the amounts of greenhouse gases emitted by them. Thus, they are caught in a scenario where they have to continue paying for carbon credits every year, which implies that they can’t stand up to larger organizations eventually.

Discover more about Carbon Trading and Carbon Offset to get a deeper understanding on how you can help in saving the environment.