Carbon trading is one of the resolutions that came out of the Kyoto Protocol of 1997 that was aimed at reducing emission of Green House Gases (GHG). Representatives from most countries in the world converged in Kyoto, Japan in 1997 to discuss global warming, it implications and how to fight it. It was from this meeting that the famous Kyoto Protocol was born.
Why Carbon trading?
After lengthy discussions at the meeting in Kyoto it was evident that most developed countries were not able or willing to downscale their industrial activities in order to reduce carbon emission. Carbon was identified as the leading cause of global warming and it is a common discharge from most industries. Another way had to be found to reduce global warming and so carbon trading was born.
How it works globally?
Simply stated, it involves paying to be allowed to emit carbon into the atmosphere. The Kyoto Protocol set a maximum cap of the amount of emission each country was allowed. A country that exceeds the cap has to pay for the excess emission. The payments are made to the least industrialized countries (mostly third world countries) whose emissions do not reach or exceed the cap.
How it works locally?
Carbon trading is also applied to local industries in the developed countries e.g. the United States. This method used to regulate carbon emission is popularly referred to as a cap and trade scheme. It works through the following steps.
The authorities set a maximum amount of emission that each industry is allowed to emit i.e. a cap.
Once the cap is set and each industry knows the limit, the authority then distributes or in some cases auctions emission allowances equating the cap.
These allowances are used to pay for the emissions that the industry makes.When an industry exhausts their allowances it means that they are emitting beyond the set cap. One solution to this is reducing their emission in order to comply with the regulation. If reduction of emission is not possible the organization can buy spare credits from other companies in order to cover the deficit.
The companies that do not emit beyond the set cap are left with spare credit which they can sell to other companies or bank them for future use.For this scheme to work well locally it will be dependent on a strict but feasible cap. The cap should not be set to high or too low.
Shortcoming of carbon trading in fighting global warming
Many critics are of the opinion that this is a failed method of fighting global warming. Ever since it started being implemented in 2005 global warming is still on a steady rise. Provided you are able to pay for it, then you are free to emit as much carbon as you want’ this is their main argument against it.
Many countries and individual industries have chosen not to abide by the Kyoto Protocol. In some stricter countries, industries still find ways to bypass the regulation.
The complex method used to calculate the amount of carbon emissions by each country or industry is also another shortcoming.