Carbon Trading

Environment has become an important buzzword in the current scenario. The rapid technological advancements are in some way or the other affecting the environment adversely. In this regard I have come across a concept, called carbon trading, which aims at controlling the release of greenhouse gases in the environment.

Carbon trading is a market-based approach, made to control pollution by providing economic incentives. The main objective of this approach is to reduce the emissions of pollutants. Generally, a government body sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is then allocated or sold to firms in the form of emission permits. These represent the right to emit or discharge a specific volume of the specified pollutant. The firms are required to hold a number of permits or carbon credits equivalent to their emissions. It is important to note that the total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their emission permits, buy permits from those who require fewer permits. This process of transfer of permits is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can reduce emissions in a cheaper manner will do so, achieving the pollution reduction at the lowest cost to society.

Effects of Carbon Trading
The effects of carbon trading are:
• The problem of heat entrapment will be solved once the emission of greenhouse gases is controlled.

• Companies that emit more carbon dioxide gas will be penalized.

• By reducing the emission of greenhouse gases, the issue of global warming can be reduced.

• The world will be a cleaner and better place to live in.

• We all will feel more secured and protected.

How Carbon Trading Works?
• Normally, a governmental body fixes a limit or cap on the amount of a pollutant that can be emitted.
• The limit or cap is then sold to firms. This is known as emission permits.
• The emission permits represent the right to emit or discharge a specific volume of the specified pollutant. In this regard the firms are required to hold a number of permits or carbon credits equivalent to their emissions.
• The total number of permits cannot exceed the cap, limiting total emissions to that level.
• Firms that need to increase their emission permits, buy permits from those who require fewer permits.
• This process of transfer of permits is known as a trade.
• Here in this respect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions.