Carbon, CO2 and greenhouse gases

The aim of ‘carbon trading’ is to help combat climate change by encouraging the reduction of greenhouse gas emissions. Scientists have identified many such gases that trap solar radiation when they accumulate in the atmosphere, thereby contributing to global warming.

Trading schemes typically place a cap on the overall emissions that can be emitted. Participating organizations are allocated a limited number of emission allowances, which they can buy, and sell. This means that companies that cut their own emissions below their cap can reap a financial reward, and those that need to emit more than their allocation must pay for the right to do so.

The most important of these greenhouse gases is carbon dioxide (CO2) and the standard unit of measurement when discussing any greenhouse gas is one tonne of carbon dioxide-equivalent (1t CO2e).

All the various emission allowances and emission reduction credits defined in the Kyoto Protocol, the EU Emission Traiding Scheme and other voluntary trading regimes – EU Allowances, Certified Emission Reductions, Emission Reduction Units etc – all represent 1t CO2e. It is now the market convention to refer to the buying and selling of any of these assets as ‘carbon trading’.