Carbon trading |

Carbon trading

Carbon trading provides a financial markets in which carbon emitters can trade the right to emit with carbon reducers. These carbon reducers provide carbon sinks or carbon reductions that can be sold to carbon emitters in lieu of them making their own reductions.

The general principle is that carbon emissions must be cut. But some people, for whatever reason, may not want to or be able to cut their own emissions. Meanwhile, others may be able to cut their emissions and may wish to sell their carbon reductions to those who can't cut down. Carbon trading provides the marketplace in which this can happen: in which organisations can buy and sell reduced carbon emissions.

If company X is required by law to reduce its carbon emissions by 10% but can only reduce them by 5% it might choose to buy carbon credits from company Y to an amount equal to that 5%. Company Y might, say, plant trees to the value of that 5% of company X’s reductions. The overall effect is the carbon emissions are reduced and company X meets its legal requirements. A key point is that company X has not reduced its carbon emissions sufficiently by itself but that company Y has effectively come to its assistance, for a price, and the overall effect is that between them the target is met.

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