CARBON TRADING

PRERNA FOR IAS

CARBON TRADING

1. Introduction to Carbon Trading

Carbon trading, also known as emissions trading, is a market-based mechanism designed to reduce greenhouse gas emissions. It places a financial cost on carbon dioxide and other pollutants, encouraging industries to lower their emissions. Under this system, companies that emit less than their permitted limit can sell their unused allowances to others. This creates an economic incentive for cleaner production and innovation. Carbon trading transforms environmental protection into a market-driven approach where reducing pollution becomes financially beneficial. It emerged as an important climate policy tool under international agreements and is widely used to support sustainable development and climate change mitigation.

2. The Science Behind Carbon Trading

Carbon trading is based on the need to reduce greenhouse gases such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). These gases trap heat in the Earth's atmosphere and contribute to global warming and climate change. Completely stopping industrial activity is not practical, so carbon trading offers a flexible solution. Instead of prescribing specific technologies, it sets limits on emissions and allows businesses to choose the most cost-effective methods for reducing pollution. This approach encourages innovation, efficiency, and investment in cleaner technologies while helping countries achieve environmental goals without severely affecting economic growth.

3. Core Concepts of Carbon Trading

Carbon trading operates through three key concepts: carbon credits, carbon allowances, and carbon offsets. A carbon credit generally represents the right to emit one