How to Understand Carbon Trading

There's alot of talk these days of global warming and the consequences. The concerns stem from the release of greenhouse gases into the atmosphere. To help combat these, nations are starting to use carbon trading to reduce emissions. Let me explain what this is about.

Instructions

Difficulty: Easy

Things You’ll Need:

• Open mind

1. First, you need to understand how the stock market works. A company sells stocks to investors who then own a piece of that company. When the value of the company increases, the stock shares increase in value. If the stocks are sold under these conditions, you will make a net profit (difference of purchase price from the selling price).
2. Carbon emission reduction (CER) certificates can be earned through documented reductions in emissions through some action. For example, a CER can be earned by implementing a methane (CH4) capture equipment at pig farm (i.e., capture CH4 emissions from pig manure ponds). Once these CER certificates are earned, they can be sold to various companies who cannot reduce their carbon emissions. Each CER will allow a company to emit greenhouse gases by a certain amount. Similar to stocks, CER certificates can also be sold on a carbon exchange market. Indeed, they can be bought and sold when the prices rise in order to make a profit.
3. Although it sounds unfair, the ultimate goal is to reduce Greenhouse gas emissions worldwide. So, if emissions are reduced in South America, these credits could be used to emit more in North America. Theoretically, this should work. Although this seems like a net reduction of zero, it occurs after each country has already reduced their emissions as much as it could and cannot find any more ways to do so (at least not without economically handcuffing itself).
4. So, trading is at least one measure to help reduce greenhouse gas emissions. It is not the complete solution, just a part of it.