Just what is carbon trading? Carbon trading (also called emissions trading) allows businesses and factories that pollute too much to buy allowances, whilst those that are more efficient can sell allowances they no longer need, at a profit. It’s a system that began in 2005 and is part of the Kyoto Protocol.

pic: greenpeaceThe Kyoto Protocol of the UN Framework Convention on Climate Change obligates industrialised countries to reduce their greenhouse gas emissions by a collective average of 5% below their 1990 levels. This is calculated on a per-country basis and for many countries, like those in the EU, this corresponds to some 15% below their expected greenhouse gas emissions in 2008. [wiki]
To achieve reduction in emissions, developed nations have two choices: they can restructure operations and processes to physically reduce emissions, or [...]they can ‘buy’ carbon credits to meet reduction deficits.

The 2nd choice can be achieved either through buying carbon credits (carbon trading), engaging in joint implementation projects [wiki], or by supporting clean development mechanism (CDM) projects, which reduce emissions in developing countries.

What is the clean development mechanism? The clean development mechanism (CDM) is a way for industrialised countries to fulfil their obligations under the Kyoto Protocol. It is an arrangement that allows industrialised countries to invest in ‘carbon projects’ that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. [wiki] In other words industrialised countries can meet their emission reduction obligations by encouraging sustainable and environment friendly technologies in developing countries. In this way it is hoped to reduce global greenhouse gas emissions at a lower cost.

Between January 28-30, the Clean Development Mechanism and Carbon Trading Africa will take place at the Gallagher Estate in Jo’burg. Statistically, Africa is a slow starter in CDM projects – due in part to a lack of understanding of the whole concept, red tape, and the fact that the governments have been slow to act.

India has emerged as the global leader, ahead of China, in implementing clean development mechanism. However, they are behind China when it comes to carbon emission reduction. [timesofindia]

Although developing countries aren’t obliged to reduce their greenhouse gas emissions, they play a huge role in respect to CDM projects and generating Certified Emission Reductions, known as CERs – a form of carbon credit achieved by CDM projects. CERs can be traded and used by developed countries to comply with emission reduction targets. An emission trading scheme under the Kyoto Protocol officially starts in 2008, which means an inevitable increase in carbon trading. [biz.thestar]

The pros and cons of carbon trading
The jury is still out on whether or not carbon trading is a good thing.

On the one hand:
• it provides a strong financial incentive to reduce energy consumption
• it is an easy and powerful tool for governments to drive emissions down
• the EU already has a working carbon trading scheme in place

On the other hand:
• it tacitly allows existing polluters to continue
• governments can avoid putting tough emission reduction measures in place
• Kyoto protocol allows countries to allocate own industries large number of permits
• aviation, motoring and domestic energy use are excluded from carbon trading
• CO2 emission growth from aviation is likely to cancel out any savings made under Kyoto
• the carbon trading market collapsed in 2006 because too many permits had been allocated to polluting European industries, and is largely regarded as a failure

Changes that could benefit carbon trading:
• the EU is hoping to include aviation into the European Emission Trading Schema (ETS) by 2010
• California & LA are discussing with Britain how they can join the ETS (this may in turn convince China and India to join) [carbon-info.org]

One can’t ignore that carbon trading is now big business. Managing emissions is one of the fastest-growing segments in financial services. Carbon finance not only trades carbon allowances but investments in projects that help to generate additional credits. More carbon is traded in London than any other city in the world and British companies are among the leading global investors in carbon projects. [international herald tribune]

PACE is a group of committed individuals from a diverse range of backgrounds that are working to make CDM happen in South Africa. Their aim is to see carbon trading used to uplift poor communities.

Project 90x2030 - an NGO with a vision that the people of South Africa change the way they live and reduce their greenhouse gas emissions by 90% by the year 2030.

Also read ‘EU cracks down on carbon emissions trading’ [businesstimesononline]. Analysts predict price rises from €1 to €35 a tonne as licences are cut by 10% to bring discipline to second phase.