The Carbon Market
The carbon market has evolved out of a global awareness and understanding of the link between human induced greenhouse gas emissions and climate change.
In the 1980s and early 1990s, the issue of climate change came to the forefront of international politics, and in 1992 154 countries signed the United Nations Framework Convention on Climate Change (UNFCCC) in Rio de Janeiro. The central element of the Convention was a commitment to stablise greenhouse gas levels in the atmosphere within a timeframe that would be sufficient to allow the ecosystem to adapt naturally to climate change.
This was followed by the Kyoto Protocol which was adopted in 1997 and entered into force on 16 February 2005. The Kyoto Protocol sets binding emissions reduction targets for several industrialised countries and also created the foundation for the carbon market through the introduction of the three flexible mechanisms: International Emissions Trading (IET), the Clean Development Mechanism (CDM) and Joint Implementation (JI).
The carbon market can today broadly be divided into two categories; the compliance market consisting of countries and companies with legally binding emissions reductions targets, and the voluntary market consisting of companies offsetting their emissions on a voluntary basis. In 2010, the carbon market had grown to a value of USD142 billion, according to the World Bank.
