Carbon trading is a market mechanism intended to tackle global warming. Though it dates back to 1989 it only took off as a market after the Kyoto Protocol was signed.
Under the Kyoto treaty - which came into force in February 2005 - industrialised countries must reduce total greenhouse gas emissions by an average 5.2% compared with 1990 levels between 2008-2012.
The most important greenhouse gas contributing to global warming is carbon dioxide, which is mainly emitted by burning fossil fuels. Under Kyoto, each participating government has its own national target for reducing carbon dioxide emissions.
How big is the market today?
Exact figures are hard to come by because the market is still fairly new, since data is not easily available and since several different schemes exist, not all directly comparable.
The World Bank, one of the main players in carbon financing, estimates the value of carbon traded in 2005 to be about $10bn.
Financing carbon deals is big money
The Bank believes the carbon market has the potential to bring more than $25bn (£14bn) in new financing for sustainable development to the poorest countries and the developing world.
Trading firms, brokers and banks are among those expected to make money through commissions for organising carbon deals.
The Bank's own carbon finance fund has more than doubled from $415m in 2004 to $915m last year.
How is carbon traded?
There are two main ways to exchange carbon.
The first is what is called a cap-and-trade scheme whereby emissions are limited and can then be traded. Under Kyoto developed countries can trade between each other.
The second main way of trading carbon is through credits from projects that compensate for or "offset" emissions.
It sounds attractive - does it work as a way of dealing with climate change?
As important as what or who is included is what is not included.
Carbon dioxide represents only part - albeit a crucial part; more than 70% - of all greenhouse gases.
Furthermore, the US, the world's largest CO2 polluter, excluded itself by choosing not to ratify Kyoto.
And while the US is the biggest emitter today, China, which is projected to exceed the US in emissions by mid century, has no obligation to reduce emissions.
Critics say trading carbon condones the idea of "business as usual" and fails to emphasise the need to invest in renewable energies and move away from fossil fuels.
Trading, while it may acknowledge the threat posed by global warming, does not address the seriousness and scale of the problem, argue environmentalists.
For trading to work it would have to become much broader - perhaps even embracing personal carbon allowances for individuals, some say.
More and more scientists are saying that the carbon dioxide ceilings under the treaty are too high - perhaps far too high - to help avert serious climate change.
That's too bad, USA is one of big industry country doen't consistense with Kyoto Agreement.
Source :http://news.bbc.co.uk/2/hi/business/4919848.stm
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