Climate Change and Carbon Trade
One of the biggest challenges from today’s perspective is climate change. Rising temperature, frequent floods, droughts, and unpredictable weather conditions are affecting communities worldwide. Carbon trading is the most practical solution to reduce global warming.
Note:- Global warming is the cause; climate change is the effect.
In this article, we will explore climate change, how carbon trading works, its benefits, challenges, and why it matters for the future of our planet.
What is Climate Change ?
The long term shifts in temperature and weather conditions is known as Climate Change. The shifting may arise due to nature and human activities. Burning of fossil, oil and gas are the main human activities that support climate change. About 30 years of scientific study of weather patterns/charts/datas can conclude Climate change.
What are the causes of climate change?
Burning fossil fuels (coal, oil, gas)
Industrial activities
Deforestation
Transportation and agriculture
Excess release of greenhouse gases like CO₂ and methane
Main impacts seen in present context?
Melting glaciers and rising sea levels
Heatwaves and extreme temperatures
Loss of biodiversity
More frequent natural disasters
Food and water shortages
What is Carbon Trade?
Carbon trade means buying and selling permission to pollute. In other words, it is a permission to emit carbon and that permission might be given to the countries/companies or both.
Carbon Trading (Emissions Trading) is designed to reduce greenhouse gas emissions and combat climate change.
1 carbon credit = reduction of 1 ton of CO₂
For practical picture,
If the country Nepal pollutes less, it can sell the unused emission rights.
If the country Nepal pollutes more, it must buy permits or carbon credits.
How carbon trading works?
There are two mechanisms of Carbon Trading.
Emissions Trading Systems(ETS)
The government sets a limit on total pollution.
Companies get pollution permits.
If a company has extra permits, it can sell them.
If a company needs more, it must buy them.
This creates a competitive and cost-effective market for reducing pollution.
Carbon Credit/Offset Markets
These come from projects that reduce pollution (like tree planting).
A company can buy these credits to balance the pollution it creates.
Types of carbon markets
Compliance markets
These markets are controlled by governments and international agreements(global rules). Companies must reduce their pollution and can use carbon credits or permits to follow the law.The purpose of Compliance Markets is to make sure countries or companies follow the rules and reduce their pollution as required by law or international agreements.
Examples:- Emission Trading Systems (ETS) like the European Union Emissions Trading System (EU ETS), California Cap-and-Trade, and China’s national ETS.
Voluntary markets
Voluntary Carbon Markets are where companies, groups, or people can choose to buy carbon credits to balance out their pollution, even if the law doesn’t require them to.
Or,
Voluntary Carbon Markets are when people or companies pay to cancel their pollution, like a factory funding tree planting to balance the CO₂ it produces.
Benefits of carbon trading
Here are the Top 7 benefits:
- It helps to reduce greenhouse gas emission.
- It makes polluters pay for pollution. (polluters pay principle)
- Helps governments achieve climate commitments (Kyoto Protocol, Paris Agreement)
- It supports sustainable development.
- It promotes green technology and innovation.
- It encourages use of clean and renewable energy.
- It supports developing countries like Nepal through investment and technology transfer.
Challenges and limitation of carbon trading
- Difficult to set the right carbon price
- Dependence on accurate data and measurement
- Unequal impact on developing countries
In Nepal context,
- We have Limited technical capacity
- Local governments, Communities, and Private sectors have limited understanding of carbon markets
- Carbon trading mechanisms (like CDM or Article 6) involve lengthy and complex approval processes
- Federal, Provincial, and Local governments slows project implementation.
Global Examples of Carbon trading
- European Union ETS
- China’s National Carbon Market
- California Cap-and-Trade Program
- International Carbon Credit Projects
Carbon Trading In Developing Countries
Opportunities
- We may have access to International Climate Finance.
- We can earn from carbon credits.
- It promotes Sustainable Development.
- It helps to attract Foreign Direct Investment.
- We can transfer technology from developed countries.
- It helps in forest conservation. (REDD+)
Challenges
- Developing nations must rely on Developed nations.
- The policies don’t cooperate with global carbon trading policies.
- Implementation of the policy may be weak due to Federalism.
- The technical expertise is in less number.
- The bargaining power in global negotiations is comparatively low.
Remember that
Climate Change (Problem identified)
↓
Earth Summit 1992 (Global meeting)
↓
Rio Declaration (Guiding principles)
↓
Polluter Pays Principle (Who should pay?)
↓
UNFCCC (Climate framework)
↓
Kyoto Protocol (Legal commitments)
↓
Carbon Trading (Market solution)
↓
Paris Agreement (Modern climate action)
Conclusion,
Carbon Trading is an overcoming mechanism from Climate Change (a serious global issue). By putting a price on pollution there is less carbon emission. That’s why it promotes sustainable development by supporting “Earth Summit”, “Polluters Pays Principle”, “Kyoto Protocol” and “Paris Agreement”. Although it has challenges, by global cooperation and strong implementing policies, we must use it as an effective tool for a green sustainable future.
FAQs
1. What is carbon trading?
Ans: It is a system to reduce carbon emission where polluters buy or sell carbon credits.
2. Are carbon trading effective?
Ans: Global carbon policy and government policy should sync with each other and if strong implementation occurs then it is effective.
3. Who uses carbon markets?
Ans: Nation, Government, Companies and Investors uses carbon markets to manage and reduce greenhouse emissions.
