The Rationale Behind Carbon Trading

Why Do We Need Carbon Trading?

The primary motivation for governments to adopt emissions trading programmes is to reduce the country’s overall greenhouse gas emissions, which are suspected of contributing to global warming and resulting problems (such as droughts, melting glaciers, habitats being destroyed, an extreme weather changes).

The rising global temperatures of recent years have many scientists (and governments) concerned. Severe drought conditions would impair a country’s ability to grow its own food (or that for export). Most of us have also witnessed damage and destruction caused by extreme storms around the world in recent years. The thought of these things increasing in frequency is enough to cause concern, and carbon trading schemes are a proactive measure countries can take to do their part in stopping increases in global warming trends.

What Else Can Emissions Trading Achieve?

In addition to environmental concerns, much of the world is currently faced with high energy costs, which extend from large companies to individuals.

By cutting emissions, these people and businesses are also cutting their energy consumption (and therefore energy costs). So carbon trading and resulting cuts in emissions can not only make businesses money when they sell off unused credits or permits, but it can save money at the same time.

Another side benefit of carbon trading is that it gives developing countries a financial incentive to maintain rainforest and other natural environments not found elsewhere in the world, but which are home to countless species of plants and animals.

How are Emissions Lowered with Carbon Trading?

With a Cap & Trade emissions trading system, a government decides on a nation-wide (or region-wide) emissions limit for CO2 and other greenhouse gases. In the beginning, this may not be a huge change for the country as a whole. The idea, however, is that a government will continually lower the yearly amount of permits issued until the country has met its long-term emissions reduction goals.

As a side effect, the carbon trading market is expected to become the largest commodity trading market in the world, as the number of permits or credits worldwide will continually decrease (pushing prices higher based on the laws of supply and demand).

Last updated 22 September 2008