Carbon trading

Definition

Carbon trading is a market-based approach to controlling pollution by providing economic incentives for reducing greenhouse gas emissions. It allows companies or countries to buy and sell allowances that permit them to emit a certain amount of carbon dioxide, creating a financial motivation to lower emissions and invest in cleaner technologies. This system connects directly to the sources and effects of greenhouse gases, as it aims to limit overall emissions contributing to climate change.

5 Must Know Facts For Your Next Test

1. Carbon trading emerged as part of international agreements like the Kyoto Protocol, aiming to reduce global greenhouse gas emissions.
2. The trading system creates a financial market for carbon credits, where each credit represents the right to emit one metric ton of carbon dioxide.
3. Companies that reduce their emissions below their allowance can sell excess credits to those who exceed theirs, encouraging innovation and investment in green technology.
4. Carbon trading can also lead to environmental justice issues, where poorer communities may face the impacts of local pollution while wealthier entities buy their way out of compliance.
5. The effectiveness of carbon trading depends on strict regulatory frameworks and accurate measurement of emissions to ensure real reductions are achieved.

Review Questions

• How does carbon trading work in relation to controlling greenhouse gas emissions?
  • Carbon trading works by creating a market for emission allowances, where companies can buy or sell the right to emit a certain amount of greenhouse gases. By capping the total level of emissions and allowing trading, companies have financial incentives to reduce their emissions below their allotted cap. This system encourages cost-effective strategies for lowering overall greenhouse gas emissions and promotes innovation in cleaner technologies.
• Discuss the potential advantages and disadvantages of implementing a carbon trading system on a global scale.
  • The potential advantages of implementing carbon trading globally include incentivizing emission reductions, fostering innovation in clean technologies, and providing flexibility for companies in how they meet regulatory requirements. However, disadvantages may include challenges in accurately measuring emissions, the risk of creating loopholes that allow for continued pollution, and potential inequities where wealthier companies can buy their way out of responsibility while marginalized communities bear the environmental burden.
• Evaluate the impact of carbon trading on achieving international climate goals and its relationship with the sources of greenhouse gases.
  • Carbon trading has had a significant impact on efforts to achieve international climate goals by creating a flexible mechanism that encourages emission reductions. Its relationship with sources of greenhouse gases is critical; by putting a price on carbon emissions, it motivates industries that are major contributors to greenhouse gases, like fossil fuel energy production and heavy manufacturing, to seek sustainable alternatives. However, for carbon trading to be effective, it must be supported by strong regulatory frameworks that ensure real environmental benefits rather than mere financial transactions.

Related terms

cap-and-trade:

A system where a limit (cap) is set on emissions, and companies can trade their allowances, promoting cost-effective reductions in overall emissions.

carbon offset: A reduction in greenhouse gas emissions, often achieved through projects like reforestation or renewable energy, that can be used to compensate for emissions produced elsewhere.

greenhouse gases:

Gases that trap heat in the atmosphere, including carbon dioxide, methane, and nitrous oxide, which are significant contributors to global warming and climate change.