Carbon Emission Trading Markets And Carbon Reduction Scheme

The impact of climate change is visible in different parts of the world and it is believed the rise in temperature of the earth has been causing devastating changes in the environment across the world resulting in unpredictable weather patterns and loss of crops. There are numerous economic problems which are part of global warming and it has also been observed that the major emitters of the world are not working in the direction to reduce the level of emissions.

There are many costs which are associated with greenhouse gas emissions which includes the internal and exte
al costs. The costs involve the hazard to the health of people who are affected by the change in climate and the impact on future of coming generations. The whole impact can be summarized as the change in natural environmental leading to creation of costs which can be direct cost or indirect such a social cost or financial loss caused by loss of crops, weather changes etc. The impact of excess emission of greenhouse gas can be seen in the health and the ecosystem. Reduced food grain production caused by change in climate has resulted in food grain shortage and a rise in the price of staple food grain.

Currently, there is need to control the level of emissions and form regulations which can prevent polluters from emitting excess amount of greenhouse gases. The global emitters releasing a high level of greenhouse gases into the atmosphere should pay for excess emissions into the environment.

Carbon tax, carbon permits and restriction on emissions

There are two main mechanisms adopted by countries to control the emission of greenhouse gases in the environment. The cap-and-trade mechanism of the carbon emission trading system imposes restrictions on the level of emissions and the mechanism of carbon tax ensures the companies pay tax for emissions. Some experts believe the mechanism of imposing carbon taxes is more effective as compared to carbon trading. Firms are given carbon permits under which they are allowed to emit a specified amount of greenhouse gases and for the excess emissions; they have to buy carbon offsets from the carbon markets. In the mechanism of carbon tax, a fixed amount of money has to be paid for emitting carbon in excess of the allowed limit. Carbon permits can be traded under the emission trading system. The method of trading carbon credits allows emitters to pay for emission. It is a mechanism where incentives are given to the emitters to reduce the level of greenhouse gas emissions.

The carbon emission credits can be transferred in the form of units which are categorised into various forms - Assigned Amount unit, Removal unit, Emission Reduction unit and Certified Emission Reduction. The Assigned Amount unit is given on a regular basis to emitters. The Removal unit is the term used for change in land use and promotion of forestry under the Kyoto Protocol. The Certified Emission Reduction is the unit generated when the project is based on Clean Development Mechanism. The Emission Reduction Unit is the joint implementation mechanism of the Kyoto Protocol.