key term - Carbon trading

Definition

Carbon trading is an environmental policy tool that allows countries or companies to buy and sell carbon credits, which represent the right to emit a certain amount of carbon dioxide. This system aims to reduce greenhouse gas emissions by providing economic incentives for emission reductions, linking it to the impacts of climate change and the need for international cooperation to mitigate these effects.

5 Must Know Facts For Your Next Test

1. Carbon trading creates a financial incentive for companies to reduce their emissions by allowing them to profit from selling unused credits.
2. The market for carbon trading can lead to innovation in green technologies, as companies seek cost-effective ways to reduce emissions.
3. Different countries have implemented various carbon trading systems, with the European Union Emissions Trading System (EU ETS) being one of the largest and most established.
4. Critics argue that carbon trading can allow companies to continue polluting if they can afford to buy credits instead of reducing their emissions directly.
5. Carbon trading also raises concerns about equity, as wealthier nations and corporations may have greater access to credits and more resources to invest in emission reduction technologies.

Review Questions

• How does carbon trading work as a mechanism for reducing greenhouse gas emissions?
  • Carbon trading works by creating a market for carbon credits, where entities are allocated a certain number of allowances based on their emission levels. If they emit less than their allowance, they can sell the excess credits to others who need them. This creates a financial incentive for organizations to lower their emissions while enabling flexibility in how they meet regulatory requirements.
• Evaluate the effectiveness of carbon trading compared to direct regulations in addressing climate change.
  • Carbon trading can be effective in promoting cost-efficient reductions in greenhouse gases by allowing entities the flexibility to trade credits. However, its effectiveness often depends on how well it is regulated and whether the cap on emissions is set appropriately. In contrast, direct regulations may provide clearer limits on emissions but can lack the market-driven incentives that encourage innovation and investment in sustainable practices.
• Assess the potential long-term impacts of carbon trading systems on global environmental policies and international relations.
  • The long-term impacts of carbon trading systems could lead to more cohesive global environmental policies as countries work together to meet emission targets. These systems may foster collaboration and technology sharing among nations while also influencing international relations through trade in carbon credits. However, disparities in wealth and resources could create tensions, as some nations may struggle to compete or comply with stricter regulations, highlighting the need for equitable solutions in climate negotiations.

Related terms

carbon credits: Permits that allow the holder to emit a specific amount of carbon dioxide or its equivalent in other greenhouse gases, often used in carbon trading schemes.

cap-and-trade:

A system where a limit (cap) is set on emissions, and companies can trade allowances, creating a market for carbon emissions.

Paris Agreement:

An international treaty that aims to limit global warming by reducing greenhouse gas emissions, which supports mechanisms like carbon trading to achieve its goals.