subject: Lower My Emissions Now - What Is Carbon Trading [print this page] What is carbon trading? Carbon trading is a market-based mechanism for helping mitigate the increase of carbon dioxide in the atmosphere. A carbon trading system allows the development of a market through which carbon or carbon equivalents can be traded between participants, whether countries or companies. This system allows participants to have flexibility in deciding how to invest in carbon emissions mitigation. For a carbon trading system to operate effectively, there needs to be effective emissions monitoring and reporting by the participants, independent verification of the emissions, and an enforcement mechanism.
Apart from the three things that were previously mentioned, there also has to be ready access to information about the market. Also, a regulatory system and a number of other economic instruments should coexist with trading. Carbon trading programs should apply to emissions which can be readily measured and controlled, such as those that are coming from the mining and energy industries.
Now, two types of trading system are the allowance trading system and the credit trading system. In an allowance trading system, each participant is allocated a limit as to the amount of carbon emissions it can produce. They can then sell any unused component of the carbon allowance, or buy carbon credits from others. Selling or buying carbon limits depends on how they are able to reduce carbon emissions.
In a credit trading system, each participant earns credits for reducing emissions by more than is required of them. They can then store these credits for future use or sale. Depending on specific circumstances, either a credit or an allowance trading system may be implemented. But then again, these two systems could coexist as well.
What is carbon trading? Well, it is the process by which buyers and sellers of carbon credits are brought together in carbon trading markets with standardized rules of trade.
