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Carbon trading is a policy measure aimed at reducing greenhouse gas emissions in an economically efficient manner. It enables nations and firms to trade permits to emit specified amounts of greenhouse gases, particularly carbon, and to offset their extra emissions by paying for reductions to greenhouse gas emissions undertaken by others.

The 1997 Kyoto Protocol requires affluent nations to reduce their greenhouse gases up to 8 percent below 1990 levels by 2012. Signatory nations agreed to allow nations to exceed their target reductions using a range of mechanisms:

  • Emissions Trading, which allows countries to buy the rights to discharge emissions above their agreed target from countries that reduce their emissions below their agreed targets.
  • Joint Implementation (JI), which allows countries to offset their excess emissions by paying for ...
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