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Carbon emissions are the total set of green house gases that an organization, product, or a person emits into the atmosphere. Apparently, the carbon emissions result from the burning of fuels such as gas, oil and coal to produce carbon dioxide, which is released into the atmosphere. The rate at which this carbon dioxide is produced has far much outpaced the ability of plants to absorb it as should have been the case in a natural carbon cycle. This has resultantly led to the increased levels of carbon dioxide in the atmosphere. As a result the overall temperature of the planet is also in constant increase, referred to as global warming. Global warming has its worse effects on the biotic and abiotic life. This is based on its capability to cause unpredictable climate tendencies such as hurricanes, droughts, heat waves and floods. In order to reverse this situation there is a dire need of reducing the amount of fossil fuel that is being burnt to produce carbon dioxide and other green house gases. It is against this backdrop that countries around the world have adopted trading in carbon as a strategy of encouraging the reduction of the green house gases emission into the atmosphere (Gutbrod, Sitnikov & Pike-Biegunska 2010, p. 67).
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The Carbon Market Places
Trading in carbon involves the allocation of carbon credits in a cap and the trade system through the project mechanism. The carbon market places are broadly divided into two markets. These are the compliance markets and the voluntary markets. In the compliance market, the cap and the trade system have a legality base while, on the other hand, the voluntary market takes place on a voluntary basis. Presently the most outstanding compliance markets are the European Emission Trading Scheme (EU-ETS) and the Kyoto Market (Bayon, Hawn & Hamilton 2007, p. 58).
The Kyoto Market was established by the Kyoto Protocol and came into force in the year 2005. In this Protocol, several countries including both developed and the developing agreed to reduce their emissions in comparison to the 1990 levels. However, the European Emissions Trading Scheme is the biggest carbon market place (Freestone & Streck 2010, p. 491). On the other hand, the voluntary markets are also gaining credible recognition as multinational companies engage in the carbon credits buying due to the rising need of fulfilling the corporate social responsibility (Brohé, Eyre & Howarth 2009, p. 121).
The European Union’s response to carbon emissions was the creation of the European Union Emissions Trading Systems (EU ETS). This trading scheme requires organizations or industries within the European Union to monitor and report high carbon dioxide emissions (Parker 2011, p. 12). Incidentally they are obliged to remit to the government a certain amount of emission allowance on the annual basis. This is done by issuing emission credits to such organizations or industries that emit the carbon dioxide gas. Apparently, the emission credits are issued for a sequence of several years, a period that forms the trading period. In the United States, the trading takes place through the World Green Exchange platform. Here, buyers and sellers are directly brought together in some kind of a regulated e-Bay. The traders in electricity, natural gas and the greenhouse emissions receive emission permits and the renewable energy certificates which encourage some states to ensure that some sources of their energy consumption is derived from clean energies such as wind mills. All in all the markets of the United States are largely voluntary (Great Britain: Parliament: House of Commons: Environmental Audit Committee 2010, p. 105).
China’s market places include the Shanghai Environment Energy Exchange, the Beijing Environment Exchange and the Tianjin Climate Exchange. These trading platforms have not had as much experience in the markets as compared to the EU ETS. Nevertheless, they look forward to enjoying the policy created demands that guarantee customer’s satisfaction. In India, the carbon trading is based on the provisions of the Kyoto Protocol (Great Britain: Parliament: House of Commons: Environmental Audit Committee 2007, p. 197).