Learn about Carbon Trading with iMinds Money's insightful fast knowledge series.
Carbon trading is a scheme designed to curb the amount of greenhouse gas emissions companies produce. This is due to the widely-held view that such emissions negatively impact the planet. Carbon trading forms part of the carbon market, which can be divided into two main categories. The first of these is project-based transactions. In this system, the buyer purchases 'emission reductions' from a project that has demonstrated its low greenhouse gas emissions. In this way, the more carbon a company emits, the more money goes towards projects that counter the effects of air pollution. The second category of the carbon market is allowance-based transactions. In this system, some companies sell emission allowances and other companies buy them. The buyers are then able to emit more carbon than would otherwise be allowed. In this way, a feasible carbon emission reduction is achieved without all businesses needing to perform to the same level. Carbon trading is an allowance-based transaction.
The belief that carbon emissions have a deleterious impact on the environment and health can be traced back to the Industrial Revolution. In the twentieth century, medical professionals investigated the apparent adverse affects of air pollution on health. They traced a link between carbon emissions and a myriad of respiratory and cardiovascular disorders, from the cause of asthma to the aggravation of heart conditions. With increased research into the adverse effects of so-called 'toxic air', there grew a push to reduce carbon emission output.
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