Carbon Markets Gain Momentum, Despite Challenges

The global carbon market has expanded quickly over the past two years, buoyed by new and continued interest among national and regional governments in curbing carbon emissions. Worldwide, carbon trading reached a total value of $59.2 billion in 2007, up 80 percent over 2006, according to initial estimates from the market research group Point Carbon.¹ Earlier estimates indicated that the volume of carbon permits and credits traded in 2006 was more than double the amount traded in the previous year.² (See Table 1.)

Carbon markets are designed to combat climate change by putting a price on carbon dioxide (CO₂) and other greenhouse gases. Compan­ies and other entities can trade the right to emit these gases through permits, credits, or allow­ances. The overall amount of emissions in a state or country is often limited by legislation. If a company emits more than allowed by law, it can buy permits from another company that has reduced its emissions to below its allocation.

In the past, large emitters (such as factories or power plants) had little financial incentive to limit carbon dioxide emissions because there were no costs directly associated with green­house gas emissions. Carbon markets are helping to internalize the true environmental costs of emitting CO₂ and other gases that contribute to climate change.