What is the carbon trade?

The carbon trade came about in response to the Kyoto Protocol. Signed in Kyoto, Japan, by some 180 countries in December 1997, the Kyoto Protocol calls for 38 industrialized countries to reduce their greenhouse gas emissions between the years 2008 to 2012 to levels that are 5.2% lower than those of 1990.

Carbon is an element stored in fossil fuels such as coal and oil. When these fuels are burned, carbon dioxide is released and acts as what we term a "greenhouse gas".

The idea behind carbon trading is quite similar to the trading of securities or commodities in a marketplace. Carbon would be given an economic value, allowing people, companies or nations to trade it. If a nation bought carbon, it would be buying the rights to burn it, and a nation selling carbon would be giving up its rights to burn it. 

The value of the carbon would be based on the ability of the country owning the carbon to store it or to prevent it from being released into the atmosphere. (The better you are at storing it, the more you can charge for it.)

Legitimized by the Clean Development Mechanism (CDM) of the Kyoto Protocol, it allows developing countries enter the trade and sell carbon absorbed in their trees to industrialized countries like the US, which is a major polluting nation.

What is even more encouraging is that in just two years, it has created 645 registered projects in around 40 countries, considerably reducing emissions.

According to an estimate by the United Nations Framework Convention on Climate Change (UNFCC), carbon trade will reduce emission equivalent to 1.9 billion tonnes of CO2 to the end of 2012.

In such trade, experts carry out eco-audits to find out hoe much CO2 the client releases and then the expert identifies environmental services which can offset the emission. This has also resulted in additional income for those who let their trees grow to maturity.