Compliance (Regulatory) Carbon Markets
There are now a number of what are referred to as "cap and trade markets" around the world, all of which are influenced by the Kyoto Protocol. The idea of a cap and trade market is that a government or organization sets a cap on the overall emissions that can occur, and if a company, industry, or nation goes over those limits, they can buy or trade from others who have emitted below their limits. Additionally, you can buy carbon credits to compensate for exceeding your limits. The Kyoto Protocol agreement has been ratified by 163 countries and is a legally binding treaty committing industrialized countries to reduce their combined greenhouse gas emissions by 5.4% below 1990 levels by 2012. Authors of the agreement established mechanisms to be used by treaty signatories to meet greenhouse gas emission reduction targets through cost-effective means.
Beyond the direct Kyoto markets, countries and regions have begun to establish emissions trading schemes. The largest of these is the European Union Emission Trading Scheme (EU ETS), launched in 2005 to facilitate participating EU countries to achieve reductions delineated in the Kyoto Protocol. The EU-ETS is already ramping up its operations: By the end of year one, an estimated 362 million tons of carbon were traded with an estimated value of US$9 billion through the EU ETS.