Carbon trading, which seeks to reduce carbon-dioxide emissions through market-based incentives, is being threatened by the global economic downturn, the BBC reports.
Carbon trading in the European Union and the United States enables governments to set limits on the amount of climate-changing pollution a company can produce.
If carbon dioxide emissions exceed that limit, the offending company can buy emission credits from companies that pollute less; thus, credit buyers pay to pollute, while sellers are rewarded for reducing their own emissions.
Yet the global recession is reducing industrial productivity, resulting in lower carbon emissions, and so creating a surplus of carbon credits whose market value has plunged.
Critics of market-based carbon trading say the whole system is flawed and warn of a “carbon bubble.”
“Recession threatens carbon trading”
BBC, January 29, 2009