Is carbon Trading "The Future" ?

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.

Carbon Trading is a market based mechanism for helping mitigate the increase of CO2 in the atmosphere. Carbon trading markets are developing that bring buyers and sellers of carbon credits together with standardized rules of trade.

Any entity, typically a business, that emits CO2 to the atmosphere may have an interest or may be required by law to balance their emissions through mechanism of Carbon sequestration. These businesses may include power generating facilities or many kinds of manufacturers.

Entities that manage forest or agricultural land might sell carbon credits based on the accumulation of carbon in their forest trees or agricultural soils. Similarly, business entities that reduce their carbon emission may be able to sell their reductions to other emitters.

Kyoto protocol's 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 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.

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.

Though Carbon credits is increasingly becoming a rage in the developing half of the world (most economies are coming up with cleaner technologies that make them earn financially through the carbon credits generated), this year there has been an unanticipated fall in the prices of carbon credits - the cause: economic recovery has been slow in the western world, thereby reducing the need to run existing polluting factories and plants, which were precisely the reason for the demand for carbon credits.

The future thus is not about trading of carbon credits, but probably in trading 'energy', which is the need of the hour and will be the single most traded commodity in the times to come.