Carbon Trade

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DEFINITION of 'Carbon Trade'

An exchange of credits between nations designed to reduce emissions of carbon dioxide. The carbon trade allows countries that have higher carbon emissions to purchase the right to release more carbon dioxide into the atmosphere from countries that have lower carbon emissions. The carbon trade originated with the 1997 Kyoto Protocol and is intended to reduce overall carbon dioxide emissions to 5% below 1990 levels between 2008 and 2012.

INVESTOPEDIA EXPLAINS 'Carbon Trade'

The carbon trade also refers to the ability of individual companies to trade polluting rights through a regulatory system known as cap and trade. Companies that pollute less can sell their unused pollution rights to companies that pollute more. The goal is to ensure that companies in the aggregate do not exceed a baseline level of pollution and to provide a financial incentive for companies to pollute less.



RELATED TERMS
  1. Carbon Disclosure Rating

    A numerical score that indicates the level of reporting of a ...
  2. Cap And Trade

    A regulatory system that is meant to reduce certain kinds of ...
  3. Emissions Reduction Purchase Agreement ...

    A transaction that transfers carbon credits between two parties ...
  4. Carbon Credit

    A permit that allows the holder to emit one ton of carbon dioxide. ...
  5. Rights

    A security giving stockholders entitlement to purchase new shares ...
  6. Trade

    A basic economic concept that involves multiple parties participating ...
RELATED FAQS
  1. What is the carbon trade?

    The carbon trade came about in response to the Kyoto Protocol. Signed in Kyoto, Japan, by some 180 countries in December ...
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