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Carbon Trading

Carbon trading emerged as the most logical option for the 180 countries and signatories to the Kyoto Protocol in Japan on December 1997. The main objective of the summit was to propose and implement a method that would significantly reduce carbon dioxide emissions between the years 2008 to 2012 to levels of 5.2-percent lower than what was observed in 1990.

Carbon Trading

Carbon is mostly derived from fossil fuels such as coal, gas and oil. When these are burned in cars or power plants, carbon is released to the atmosphere to form part of the greenhouse gasses.

The Kyoto Protocol called for the reduction of greenhouse gas emission in 38 highly industrialized countries, excluding the United States of America who refused to sign the accord. The United States happens to be the top polluter of the world but was not amenable to the proposition sensing that it can never meet proposed cuts.

The summit tackled the subject of greenhouse gases collectively and yet treated nations individually on issues concerning the actual volume of emissions generated per country. A monetary value was assigned to carbon credit bonds that can be exchanged between countries that need to meet carbon caps and among countries that have attained emission targets.

How does" carbon trading" work?

Carbon trading is similar in nature to the trading of securities or commodities in stock exchange. Countries having problems on gas emission caps are compelled to purchase additional carbon credit bonds to meet annual quotas. While countries that have not reached their emission caps are free to buy the bonds in anticipation of a windfall in case of a soar in demand.

It's like giving a country the right to increase the burn of fossil fuels with the purchase of carbon credits, while another country sells and allows such activity by relinquishing their right to burn.

Since this would result in gradual cutbacks in emission levels every year, a viable market will most probably develop. Carbon trading means industrialized countries will have to buy emission rights from countries whose level of productivity does not require high levels of carbon dioxide emissions.

Environment friendly companies are doubly blessed since they have not fully utilized their emission caps and could therefore sell their carbon credits to raise company profits. This will serve as a boost to the environment since this system will greatly reduce carbon dioxide emissions with some countries reaping pertinent economic benefits.

How effective is carbon trading?

Critics argue that some countries will try to exploit the use of carbon trading and the efforts to correct greenhouse gas emission levels will just go for naught. Carbon trading will only be effective if there are set safeguards in the trading process and when proof of actual reduction in gas emissions is documented as sufficient to eventually forestall the effects of global warming.

If the system is not far-reaching it will simply fail. Part of critics' apprehension is the fact that the United States pulled out of the Kyoto Protocol.

Another point worth mentioning is the exclusion of China and India, two of the world's largest polluters, ranking 2nd and 3rd after the United States. These countries are classified as developing nations and are therefore exempt from the Protocol's framework.

Some would argue that their presence as big-scale polluters have actually propelled the system of carbon trading to succeed. Still others contend that despite the above situation, the process is deemed to already have a good head start.

Big businesses buying into carbon trading seems to be the only option. The bottom line is that something is being done to reduce carbon dioxide emissions. If you are not buying into carbon trading, then you must be investing into something else, such as pollution equipment that likewise reduces your emission excesses.

No company will buy carbon credits if they have a better and cheaper alternative. In the end, if the stop gap remedy of carbon trading costs a lot of money, then companies will always find a way to do what is right as long as it also benefits their bottom lines.

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