Carbon trading is a trading system which is market-based and aims to reduce greenhouse gases, especially excess carbon dioxide, from the environment. It is a positive approach to limit emissions by creating a market that limits allowances for emissions and encourages companies and organisations to meet carbon emission reduction targets. Compliance forms of the market are of two types: • Cap & Trade • Carbon Tax Under ‘cap and trade’, governments or inter-governmental bodies hand out ‘carbon permits’. The 'cap' is the name given to the limit imposed on any company on the amount of GHGs that company or factory is emitting and the 'trade' is the financial aspect, on which market is built involving buying and selling of allowances that let the company emit only a certain amount of GHGs. The government sets the caps on the industries or across industries and sets penalties for the violations to ensure compliance of the policy World is market driven and 'cap and trade' allows the market to find the cheapest way to cut emissions. Cap and trade is always regarded as the main contributor to the slashing of increasing levels of GHGs from the atmosphere. Carbon emissions are believed to decrease globally if cap and trade is much more discretely planned, and is implemented worldwide with precision. A carbon tax sets a price on carbon by defining a tax rate on greenhouse gas emissions. It is different from an ETS and cap and trade in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is. The choice of the instrument will depend on national and economic circumstances. There are also more indirect ways of more accurately pricing carbon, through fuel taxes, the removal of fossil fuel subsidies, and regulations that may incorporate a “social cost of carbon.” Greenhouse gas emissions can also be priced through payments for emission reductions. Private companies or organisations can purchase emission reductions to compensate for their own emissions (offsets) or to support mitigation activities through results-based finance. The projects that count as ‘emissions avoidance, range from building hydro-electric dams to capturing methane from industrial livestock facilities. The carbon ‘savings/emission avoidance’ are calculated according to how much less greenhouse gas is presumed to be entering the atmosphere than would have been the case in the absence of the project. The World Bank officials, accounting firms, financial analysts, brokers and carbon consultants are involved in devising these projects. The usual criticism that carbon trading faces is whether it is proper to put a price on climate change? Can we ever put money out of the way though, the world is run on money and the most powerful people in the world are too affluent and far off for a voice of an activist to reach them. By pricing the carbon one can talk to the affluent in the language they understand. It is a novel way of addressing the climate issue and it is turning heads in modern times. Environmental, social, and governance (ESG) bonds are becoming increasingly important to fixed income asset managers, throughout the world and for global equity research where these factors are more firm. In 2016, the United Nations-supported Principles for Responsible Investment (PRI) unveiled the ESG Credit Ratings Statement. Over 160 investors with over $30 trillion in assets under management and 23 CRAs have signed the statement as of October 2020.
