Given the increasing concern about global warming and increased carbon emissions into the air, national administrations and other agencies are trying to find viable alternatives to lower pollution. Carbon offset and carbon trading are two of the most effective techniques being practiced for achieving this.

In carbon trading, carbon credits are purchased and sold in the market by businesses. These credits decide the amount of greenhouse gases that companies can emit above their allocated quota without incurring a penalty.

The fundamental advantage of the carbon trading system is that it rewards lowering of emissions. The idea is that businesses will discover that adopting eco-friendly methods of carrying out business is more gainful than facing penalty for carbon credits. If the firm is made to shell out money for releasing the gases then it would attempt to make use of greener methods to stay ahead of other organizations. As more and more businesses adopt this system, the total emission levels across the world will go down progressively, thereby protecting the environment.

Another significant benefit of carbon trading is that it is based on an open market system where any firm can purchase or sell carbon credits. As it does not include any direct government interference to impose penalties or to make local regulations, this system is more successful.

The biggest disadvantage of carbon trading is lack of a comprehensive global framework for trading. As most of the trading happens in the global markets, it is difficult for some local businesses to follow this system.

A few businesses are disinclined to opt for this system, as they do not want to incur costs that cannot be transferred to their products’ end buyers. Further, numerous small enterprises are not capable of affording the costs of buying the machinery or implementing state-of-the-art techniques that would reduce their emissions. Therefore, they are caught in a position that makes them bear the costs of carbon credits continuously and thus they fall behind in the race against bigger companies.

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