Carbon Trading is a market-based system under cap and trade programs that aims to regulate greenhouse gas emissions. In this system, countries with high carbon dioxide emissions can purchase the right to produce more from other nations with lower emissions. In theory, this will help to reduce the overall emissions by adding a price tag to pollution.

The use of this system was born out of the Kyoto Protocol. In the early 1990s, all member states of the United Nations agreed that the threat of global warming needed to be addressed and tackled head on. In 1997, the Kyoto Protocol was signed and outlined the plan to form a carbon trading market that would help to slow down the threat of global warming.

In 2005, this measure came into force, setting specific targets of five percent below 1990 levels between 2008 and 2012 for members that have industrialized traditional economies while developing countries were not expected to meet emission targets.

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Other Sources

Dowdey, Sarah. “How Carbon Trading Works.” How Stuff Works. http://science.howstuffworks.com/environmental/green-science/carbon-trading.htm. Accessed July 26, 2016.

Investopedia. “Carbon Trade.” Investopedia. http://www.investopedia.com/terms/c/carbontrade.asp. Accessed July 26, 2016.