Carbon Emissions Trading
Carbon emissions trading was brought about by the signing of the Kyoto Protocol that was signed by 170 countries in Kyoto, Japan, in 1997. This agreement calls on all industrialized countries to bring down the green house gases emitted by their industries and various other sources to levels that are 5.2 percent below those recorded in 1990. They have been given a time between 2008 and 2012 to achieve this target.
Carbon is a by-product when we burn fossil fuels like oil and coal and is one of the main contributors to global warming. Global warming is a term used to describe the effects of human actions on the atmosphere. With the increased activity of humans such as changed land usage, setting up of industries and a great dependence on automobiles, humans are collectively contributing to increased levels of carbon dioxide in the atmosphere and in turn increased global warming effects.
By capping the levels of carbon dioxide that a country is allowed to emit and by assigning a standard to the unit of carbon called one carbon credit, which is equivalent to a thousand kilograms (one ton) of carbon dioxide or its equivalent greenhouse gas, and giving the unit a monetary value, the stage was set for a lucrative market where carbon emissions trading could be carried out with very happy prospects participating in this industry.
There is a lot of similarity in carbon emissions trading and trading of securities and commodities in an exchange. Perhaps carbon emissions trading is a bit more regulated with lesser chances of the market being prone to political upheavals and fixations. Because of carbon being given a value and allowing people, industries and countries to buy and sell it carbon emission trading has become the talk of the trading world with many investors looking at this trading opportunity with a great deal of enthusiasm.
The value of the carbon credit is established by a country’s efforts and ability to store it or prevent the release of carbon into the atmosphere. In a nutshell, when a nation buys carbon credits it is buying the right to burn the carbon and the nation selling the carbon credits is giving up the right to burn it. The better the country is at preventing the release of the carbon or storing it the greater the price it can quote for the carbon.
The market that is established for carbon emission trading facilitates the buying and selling of the right to emit gages that would contribute to the greenhouse effect. Some industrialized nations may feel that reducing carbon emissions is a mammoth task and for the short term may find it economical to buy the rights to emit carbon from the country whose industries are not producing the allowed quotas of carbon. This trade in carbon emissions is only possible because the Kyoto protocol has established a common goal for all countries to reduce carbon emissions during fixed periods of time.
Carbon emissions trading is a win-win situation. It allows for the creation of a situation where countries will want to contribute the lowering of carbon emissions, something that the whole world can benefit from and they will also reap huge monetary profits from a market that is promising to be more lucrative than any other. CO2 emission trading is a process that has found a compromise between equality, profit, and ecological concerns. This is deemed to lead to a controversial debate, however, many investors, both individual as well as investment companies are reaping fortunes in the meant time.
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