Carbon trading

Definition

Carbon trading is a market-based approach to controlling pollution by providing economic incentives for reducing greenhouse gas emissions. This system allows countries or companies to buy and sell carbon credits, which represent the right to emit a certain amount of carbon dioxide or equivalent greenhouse gases. By facilitating the exchange of these credits, carbon trading aims to encourage emission reductions where it is most cost-effective, supporting efforts to mitigate climate change and manage ocean chemistry.

5 Must Know Facts For Your Next Test

1. The concept of carbon trading is often implemented through cap-and-trade systems where a government sets an overall limit on emissions.
2. Carbon trading can stimulate investments in cleaner technologies by creating financial opportunities for those who reduce emissions more efficiently.
3. The market for carbon credits can fluctuate based on supply and demand, influencing the cost of compliance for businesses under emission regulations.
4. Carbon trading not only targets CO2 emissions but can also encompass other greenhouse gases, reflecting their global warming potential.
5. International agreements like the Kyoto Protocol established frameworks that promote carbon trading as a method for countries to meet their emission reduction targets.

Review Questions

• How does carbon trading provide economic incentives for reducing greenhouse gas emissions?
  • Carbon trading incentivizes emission reductions by allowing entities to buy and sell carbon credits. When a company reduces its emissions below its allocated limit, it can sell its excess credits to another company that exceeds its limit. This creates a financial benefit for companies that invest in cleaner technologies or operational efficiencies, making it economically attractive to reduce emissions.
• Evaluate the effectiveness of cap-and-trade systems within carbon trading in achieving environmental policy goals.
  • Cap-and-trade systems are effective in establishing a market for carbon credits, creating financial motivations for emission reductions. By setting a cap on total emissions and allowing trading of allowances, these systems encourage companies to find the most cost-effective ways to lower their emissions. However, the success of such programs relies on accurate monitoring, robust regulatory frameworks, and adequate penalties for non-compliance to ensure overall emissions decrease as intended.
• Synthesize how carbon trading intersects with international agreements aimed at climate change mitigation and ocean health.
  • Carbon trading plays a crucial role in international agreements like the Paris Accord by offering flexible mechanisms for countries to meet their greenhouse gas reduction commitments. By facilitating the exchange of carbon credits on a global scale, these agreements promote cooperation among nations while addressing both climate change and its effects on ocean chemistry, including acidification. This interconnectedness highlights the need for coordinated efforts to mitigate the impacts of climate change on both terrestrial and marine environments.

Related terms

Carbon Credits: Permits that represent the right to emit one metric ton of carbon dioxide or its equivalent in other greenhouse gases.

Cap-and-Trade: A regulatory system that sets a limit (cap) on total greenhouse gas emissions, allowing companies to trade allowances within that limit.

Greenhouse Gas Emissions: Gases that trap heat in the atmosphere, including carbon dioxide, methane, and nitrous oxide, which contribute to global warming.