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The global carbon trading market grew to nearly $22 billion in the first nine months of the year, more than doubling over the previous year. China and India are leading the clean development mechanism market, according to the World Bank. Up to the end of September, Asian countries accounted for 84 per cent of total volumes in the CDM market. India has a 15 per cent share of the market, up from 3 per cent in 2005. The global market in trading carbon dioxide has doubled in the past year, the World Bank report said, in spite of high-profile failures such as the crash in carbon prices in Europe. About $22 billion of carbon was traded in the first nine months this year compared with $10 billion during 2005. According to the report, London has cemented its position as the leading location for international carbon trading this year. The market in trading carbon was formed
under the Kyoto protocol (an agreement made under the United Nations
Framework Convention on Climate Change -- UNFCCC) on climate change, which
requires developed nations to cut their greenhouse gas emissions by an
average of 5 per cent relative to 1990 levels. Agricultural soils and some
other sources and sinks may also be included, although these are yet to be
agreed to. The protocol covers more than 160 countries globally and over
55 per cent of global greenhouse gas (GHG) emissions. What does this all have to do with carbon emissions trading? Under the UNFCCC, countries are permitted to use a trading system to help meet their emissions targets. In principle, a country may allocate permits to individual companies for the emission of a certain quantity of greenhouse gases. If permits are only issued to a level equal to or below the assigned amount, then a country should meet its Kyoto commitment (assuming that the measures of its emissions are accurate). If a country is incapable of meeting its target, it can buy permits from countries that are under their targets. Similarly, companies within a country that prove more able to reduce their emissions are allowed to 'trade' excess permits to other, more polluting, enterprises. The trading system involves the issuing of carbon credits for afforestation and reforestation activities. It requires an assessment to answer questions such as: Was the forest established after 1990? How quickly is it growing? How much carbon is it sequestering? Credits are issued to the individual or company growing the forests. Most popular location for projects generating carbon credits was China. It took a 63 per cent share of the market for selling credits in 2006. India generated 12 per cent of credits and Africa nearly 6 per cent; up from about 2.5 per cent last year. The market for buying and selling credits makes up only a small proportion of the total carbon market by value, at about $3 billion so far this year. The lion's share of the trading market is taken by the European Union's greenhouse gas emissions trading scheme: $19 billion was traded between January and October 2006. People have become increasingly concerned about the possible effects of global warming. Although the annual rate of emissions has been decreasing, the CO2 concentration in the atmosphere is still increasing. In 1992, most developed countries in the world agreed to the UNFCCC, and thus minimise the adverse effects of climate change. But experience has shown that reducing the use of fossil fuels is a slow process. Part of the reason for global warming is excessive land clearing. Vegetation, largely forest, is already absorbing about one-third of human-induced emissions, planting more forests could increase absorption. Some caution is required because accounting for the carbon contained in forests is difficult. The amount of carbon in forest soils, forest litter and the trees themselves needs to be measured. Different types of trees store different amounts of carbon when growing on different types of soils in different climates. In addition, we might expect natural year-to-year variations in carbon stored, related to climate variations. And there is the added difficulty of monitoring the long-term fate of carbon - will the sink become a source? While forests are an important carbon sink, there is a limit to the amount of carbon that they can store. A number of changes are needed to achieve a substantial decrease in emissions. It will require reduced energy demand, increased energy efficiency, using less fossil fuels and more renewable energy sources. It will also require research and development of sustainable technologies that reduce carbon emissions. A country (or group of countries) caps its carbon emissions at a certain level and then issues permits to firms and industries that grant the firm the right to emit a stated amount of carbon dioxide over a time period. Firms are then free to trade these credits in a free market. Firms whose emissions exceed the amount of credits they possess will be heavily penalised. The idea behind carbon trading is that firms that can reduce their emissions at a low cost will do so and then sell their credits on to firms that are unable to easily reduce emissions. A shortage of credits will drive up the price of credits and make it more profitable for firms to engage in carbon reduction. In this way the desired carbon reductions are met at the lowest cost possible to society.
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