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.



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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 ... Read Full Answer >>
  2. Why is a Free on Board (FOB) designation important for freight transportation?

    A free on board (FOB) designation specifies whether the buyer is responsible for freight charges and determines the obligations ... Read Full Answer >>
  3. How does the International Chamber of Commerce define the term 'Free on Board' (FOB)?

    The International Chamber of Commerce (ICC) is one of world's largest business organizations and has published a set of trade ... Read Full Answer >>
  4. What determines if an international trade is Ex Works (EXW) or Free on Board (FOB)?

    "Ex works" (EXW) and "free on board" (FOB) are international trade terms that dictate the responsibilities of buyers and ... Read Full Answer >>
  5. How are transportation costs and risks assigned in an Ex Works (EXW) trade?

    An ex works (EXW) trade agreement is part of the Incoterms rules and requires the sellers of goods to make the goods readily ... Read Full Answer >>
  6. What is the distinction between Free on Board (FOB) shipping point and destination?

    "Free on board (FOB) shipping point" and "free on board destination" are international trade terms that specify where the ... Read Full Answer >>
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