WHAT IS CARBON TRADING?

"Carbon Trading" is still in its nascent phase, but the kind of growth this market is experiencing is tremendous and that is what makes it so exciting to talk about. This word was totally alien to me couple of years back, and as I'm coming to terms with it, our relationship has grown from strength to strength.Apart from the fact that "Carbon" will become the single most biggest commodity ever traded, another aspect of it which makes it important is the solution it offers to a common problem which we all have just started to realize and probably talk about more, "Global Warming" I've tried to cover in basic terminology, what carbon trading is, in this post. Problem: Carbon emissions into the earth's atmosphere have resulted in drastic climatic changes. Though, we have both, firm believers who blame Industries outright for polluting the atmosphere resulting in some of natures shocking disasters and some, who believe it's difficult to blame carbon emissions for these climatic changes as its hard to find a pattern over the past billion years or so, how climate has changed.Though, both have strong points to back their beliefs, whenever I see smoke coming out of chimney,
I believe its not good for the environment. Solution: NGOs or non-profit organizations for long have been screaming for everybody's attention towards this huge problem, but no one seems to care enough, not until there is a financial incentive attached to it. That's what the governments of various countries have been trying to come up with, a trading mechanism where companies gain a monetary benefit out of polluting the air less.Kyoto protocol's goal is exactly that. The idea is to divide the whole world into two, one who can afford making changes to their existing infrastructure and the ones who cannot. As everybody is polluting, be it a developed country or a developing country, the financial aspect has to be kept in mind. All developed countries will have to cut down their emissions by some percentage or else they pay heavy fines. Now, one way of measuring how much they are polluting the air less, is by assigning each tone reduction of CO2, a unit. They have various ways to aggregate these units called "CER" or "Carbon Emission Reduction" units: 1) Invest in CDM/JI Projects. 2) Buy these credits from the market.CDM/JI Projects: CDM or Clean Development Mechanism is a project which is executed in a developing country where they cannot, on their own, afford to bring that technology change in the existing infrastructure which can result in less carbon emissions. As an example, a company in a developed world can give money to a company in a developing world to buy the necessary technology and in turn own the carbon units generated by bringing that technology change and thus meet the targets set by their governments. This will help developing countries to get the much needed financial help and in turn help the developed countries to meet the emission cut targets or if they end up with excess of such units, sell them and earn some profit out of it. It really doesn't matter, from where on earth carbon emissions are reduced, 'cause it will be beneficial for the environment any ways.JI or Join Implementation is a similar approach, only difference being the both the parties involved in executing such a project are from the developed world. 2) Carbon Trading: the second option for companies in the developed world is that if they do fall short of the emission targets, they can buy those from the market, from someone who was successful in meeting those targets and has a surplus of carbon units with them. It's not important that someone is doing more to reduce carbon emissions and someone else is just buying the rights to pollute the air. What's important is, overall, we have those many carbon units in market, or in other words we have reduced the amount of carbon emissions what we did set out to achieve.