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Carbon Trading, a Market Mechanism for Tackling Climate Change

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"Carbon emission trading," a scheme that allows market forces to reduce carbon dioxide emissions and tackle climate change, has drawn world-wide attention in recent years.

Many people hope such a scheme, which works through market mechanism, could effectively promote the development of a low carbon economy and hence solve the climate crisis we humans are facing today.

The emissions of greenhouse gases, including carbon dioxide, are not tradable goods as a matter of course. However, the U.N. Framework Convention on Climate Change (UNFCCC) signed in 1992 and the Kyoto Protocol adopted in 1997 provided legal prerequisite for the trading of carbon emissions.

The protocol introduced three flexible mechanisms for the developed countries to reach their emission reduction targets, namely, emissions trading, clean development and joint implementation mechanisms.

According to the UNFCCC and the protocol, the developed countries and developing countries shoulder "common but differentiated responsibilities" for climate change.

Under the convention and the protocol, developed countries would reduce their collective greenhouse emissions by 5.2 percent from 1990 levels during the first five-year commitment period 2008-2012.

Some developed countries, therefore, are setting a cap on total allowable carbon emissions, which means the carbon emission rights become scarce and hence a valuable asset.

Carbon trading could be carried out between different countries around the world as well as between various enterprises within a country, with an ultimate goal of controlling total carbon emissions and dealing with climate change.

Under such a scheme, an enterprise that intends to exceed the limits or "caps" set by the government may buy emissions credits from entities that are likely not to exceed the limits.

The mechanism has at least two effects, namely, serving as an incentive for enterprises as more emissions entail additional costs and less emissions mean extra profits, and helping curb the total emissions of carbon dioxide.

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