The carbon market is another name for emissions trading, a market driven approach to mitigating global warming.
The carbon market is an example of a cap-and-trade system. Under cap-and-trade the government sets limits (the "cap") on industrial emissions of carbon dioxide. Companies receive an annual allowance of carbon dioxide emissions. Those that emit more than their allowance must buy carbon credits (the "trade") from those whose emissions are under their allotment. The cost of emissions is expected to increase over time as more stringent goals are set.
In the US, President-elect Obama wants to reduce emissions to 1990 levels by 2020. To establish a national carbon market, Congress must pass enabling legislation authorizing the US Environmental Protection Agency to monitor and regulate emissions.
The US already has had success with cap-and-trade systems. The Clean Air Act of 1990 targeted and reduced the major cause of acid rain, sulfur dioxide emissions.
In 1997, the State of Illinois adopted a trading program for volatile organic compounds (VOC) across eight counties called the Emissions Reduction Market System. Since 2000, major sources of pollution in eight Illinois counties have traded pollution credits.
The nations that are part of the Kyoto Protocol and the European Union have worked together and separately to establish a global carbon market that aims to reduce CO2 emissions of industrialized countries to 5% below the 1990 emission level by 2012. Critics of the carbon market argue (among other things) that initial allocations of pollution credits are often unfair, and that household energy costs will go up just as the country experiences an economic downturn.
(Photo credit: Ulrich Joho, Flickr)
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