‘Clean money for dirty air’. Under the Kyoto Protocol, when a company adopts a cleaner technology as compared to existing ones, the notional difference in emission levels becomes the carbon credit entitlement for that company, which can be traded in global markets.

The Kyoto pact has spurred a carbon trading market. Global carbon markets reached a value of $60 billion in 2007, up 80% from the year before, according to Point Carbon, a research and consulting firm that conducted the largest survey into the emerging sector. After receiving more than 3,700 responses to their survey, Point Carbon said it expects carbon prices to reach $54 a ton by 2020, up from $37 a ton by 2010. "There seems to be a generally bullish sentiment on carbon, not necessarily reflected in current market prices," Point Carbon said.


The Kyoto Protocol

The Kyoto Protocol, adopted in 1997 to reduce greenhouse gases that cause global warming, came into force in 2005. The protocol has been ratified by 175 countries, including those in the European Union, Japan, Canada and Russia. This has set legally binding targets for the countries to reduce their greenhouse gas emission by 5.2 per cent, from the 1990 levels, by 2012.

But carbon dioxide-belching oil refineries and power plants, beyond some in Europe, mostly have yet to join in. That's mainly because President George W Bush withdrew US – the top polluter – from the international agreement, and as rapidly developing countries like China, India and Brazil oppose emissions limits because they have only recently industrialized, but this is likely to change as the economic impact of global warming starts hitting.

Firms from developed countries like the US and Australia, which have not signed the Kyoto Protocol, are also getting sensitive about their "green" image due to pressures from investors and scrambling to cut emissions on a voluntary basis.

As per the Kyoto Protocol, one carbon credit can be earned by preventing generation of a tonne of carbon dioxide. One carbon credit is worth $10 as per the UN Framework Convention on Climate Change guidelines. However, uniform pricing of carbon has not been possible due to the fragmented nature of the carbon market. Allowing carbon-constrained U.S. firms to trade credits with firms in China or India, for example, where emission reduction measures are relatively inexpensive, would yield an estimated U.S. carbon price as low as $15 per tonne during the first years of the program.

Carbon Trading Exchanges

The European Climate Exchange (ECX), the Chicago Climate Exchange and the Asia Carbon Exchange are places where these credits change hands.

Recently Morgan Stanley, the investment bank, announced a $3bn plan to invest in the carbon trading market amid mounting evidence that some US states are growing more sympathetic to international action.

The Green Stock Exchange (GREENSX) plans to take part in carbon trading via its eBAY.COM styled trading system.