Carbon Trading

Carbon trading, or emissions trading, is one of the fastest, if not the fastest,  expanding international commodity market.   The traded volumes have risen by over 1000% in the period between 2005 and 2010.

What is actually traded on the carbon markets is a carbon offset, which is the equivalent to one metric ton of carbon emissions.   The commodity that carbon trading is based upon is the negation of carbon emissions, not carbon itself.

 Carbon trading is a relatively new commodity market, having come into existence in its present form in 2005 with the European Union Emissions Trading System, EU ETS.  The European system was the first established large scale compliance cap-and-trade system for greenhouse gas polluters, a result of the 1997 Kyoto Agreement.  Since then many other sub-national, national and international carbon trading compliance systems have been established and are continuing to come into existence.  The voluntary market of companies and individuals trading carbon offsets outwith the compliance regimes is also growing fast.

 Despite growing rapidly and becoming established as a global commodity market, carbon trading as a concept can still require some explaining and has its skeptics.  It has been likened to the modern version of the practice in the middle-ages of buying relics or indulgences from the catholic church for forgiveness.   Swap sin for pollution, but the concept is the same say the skeptics.

 Nevertheless, new compliance markets for carbon trading are coming into existence regularly, the existing ones expanding strongly.  The voluntary carbon markets are also growing fast, albeit they are in a different league to the compliance markets in terms of size.

 The UN and the major international organisations such as the World Bank, are all strongly behind the carbon trading concept.  The vast majority of the world’s nations have signed up to the Kyoto Protocol on climate change, to which carbon trading is the central implementation mechanism.  Barclays Capital have been attributed with saying that carbon trading is set to become the world’s largest commodity market, and potentially the larger market overall.  While this is almost certainly getting well ahead of ourselves, it is fair to say that the way the market is maturing, developing and becoming an integral part of economic life, it is here to stay.  

 This website will take a look at carbon trading in terms of its structures, the market and the major stakeholder with the aim of facilitating a clearer understanding for those interested in this new and growing market.