The words carbon credits and carbon trading usually come up in seminars and meets on the dangers of global warming, but these terms are still alien to most people. Carbon trading is a system under which greenhouse gas emissions are limited under the Kyoto Protocol, and these caps are then allotted throughout the world market in such a way as to promote lower emissions or lessen release of carbon dioxide and other greenhouse gases.

Carbon credits are allocated to industries and governments throughout the world, which allows the owner to discharge a limited amount of CO2 and other greenhouse gases into the air. One carbon credit is equal to one ton of carbon dioxide emissions. This means that low-emission industries can sell carbon credits to high-emission industrial units, thereby ensuring a cap on the greenhouse gas emissions in the atmosphere.

The best thing about this system is that companies and industries responsible for polluting the environment have to pay for their excesses by means of purchase of carbon credits from the trading market. However, both organizations selling and buying the credits can be found in the carbon credits global market. Hence the balance in global economy is maintained, while organizations with low emission records earn profits. This makes companies shift away from the carbon-intensive approach of manufacturing, and so the emission levels fall.

Open trade of carbon credits on stock exchanges allows greener energy and process usage of a company to be incentivised and capitalized, whether the company is a small one or a large one. Trade in carbon credits fetches instant and considerable benefits for organizations with low emissions. Moreover, the entire idea has also been expanded to countries, there would always be encouragement to reduce emissions from the national governments to local companies, which is a great advantage as several governments are usually blamed for absence of initiative on environment.

However, there are some people who advocate alternative systems like carbon tax, which instead of incentivising the greener organizations, will penalize those who have extra emissions. The effectiveness of such schemes is still an issue of debate.

In a short period since its adoption, carbon trading has shown to be the most appropriate method to deal with the problem of carbon emissions. The carbon trading business has seen considerable growth in the last few years, and this evidences beyond doubt that the system is impactful.

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