Introduction 

Carbon Credits Trading or Emission Trading refers to trading in Greenhouse gas emission certificates within the legal framework. It is a market-based scheme for environmental improvement that allows parties to buy and sell permits for emissions or credits for reductions. Emissions trading allow established emission goals to be met in the most cost-effective way by letting the market determine the lowest-cost pollution abatement opportunities. 

Under such schemes, the environmental regulator first determines the total acceptable emissions and then divides this  total  into  tradable units  (often  referred  to as credits or permits). These units are  then allocated  to scheme participants with dual purpose while allowing the flexibility to meet their emission targets according to their own strategy.

• Participants who emit pollutants must obtain sufficient tradable units to compensate for their emissions.
• Participants who  reduce  emissions may  have  surplus  units  that  they  can  sell  to  others, who  find  emission reduction more expensive or difficult.

Historical Perspective

Emissions trading schemes were first developed in the 1960s and 1970s in the United States, motivated partly by dissatisfaction with the cost of the regulatory approaches to pollution control, they were first used to price, with a view to reduce nitrogen and sulphur oxides (NOx and SOx) emissions in the United States electricity industry.

Kyoto Protocol - 1997

The Kyoto Protocol  is  an  amendment  to  the  international  treaty of United Nations Framework Convention on Climate  Changes  (UNFCCC) which  is  a  legally  binding  agreement  under which more  than  169  industrialized countries have agreed to reduce greenhouse gas emissions to a level of 5.4% by 2012 keeping 1990 as the base. The objective of the protocol is the \"stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic  interference with  the climate  system.  Under  this protocol, about 38 industrialized countries and the European Union forms a part of Annex-1 list, the remaining are part of Non–Annex 1 list of countries. Carbon Market is the brainchild of the Kyoto Protocol for controlling greenhouse gas emissions. Green house gases are emitted mainly by burning oil, gas, and coal that are resulting in perilous climate change. Each carbon credit represents one ton of carbon dioxide either removed from the atmosphere or saved from being emitted.