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Commercial Advantage From The Trading Of Carbon Permits

Carbon Emissions Trading is a mechanism advocated for emissions reductions at a global stage for the lowest cost. As per the article of Fiona Harvey (2006) under the EU, the government places an aggregate emissions cap or quota on a group of emissions sources and distributes emission permits equal to the level of the cap. Each firm must have enough permits to cover its emissions, and may sell or buy permits to or from another other firm. The rationale behind the system is the total allocation of emission permits is centrally controlled and an overall reductions can be achieved by reducing the amount of permits issued each year. As permits for unused allocations become scarcer, the price rises and more emissions-reducing investments become viable.

In Comparison to well-functioning, liquid and stable markets the emerging carbon market is not yet a liquid, transparent market. The concept is still in its yester years and has met with lot of unpredictability. Capoor, K. & Ambrosi, P (2007) explain that overall transaction in the carbon market can be grouped into two main categories:
• Allowance-based transactions: Here buyer purchases emission allowances created and allocated by regulators under cap-and-trade regimes, such as Assigned Amount Units under the Kyoto Protocol, or European Union Allowances (EUAs) under the European Union Emissions Trading Scheme (EU ETS). To ensure lowest possible cost these schemes combine environmental performance and flexibility through trading, in order for mandated participants to meet compliance requirements.
• Project-based transactions: Here buyer purchases emission credits from a project that can verifiably demonstrate Green House Gas emission reductions compared with what would have happened otherwise. Significant ones being activities under the Clean Development Mechanism (CDM) and the Joint Implementation (JI) mechanisms of the Kyoto Protocol, generating Certified Emission Reductions (CERs) and Emission Reduction Units...