Emissions Trading 2005 and its Implications for Businesses

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Basics of Emissions Trading

The formulation of a market needs a buyer and a seller and, at times, due to high transaction costs (e.g. finding a buyer or seller, price discovery), market participants want a specialized broker to link buyers and sellers efficiently. Certainly, people want to buy or sell products or services with a scarcity value in a market. The price of any product or service is determined by the point where demand and supply intersect in a market and by the degree of scarcity of the products and services. Transition of time and place changes the value of a product or service as well. People no longer use seashells as units of currency, while emissions have become the latest hot commodity (e.g. greenhouse gases), something which had no value in ancient times. Already, emissions have been traded since 1990 at national level (e.g. United States Acid Rain Program). With the entry into force of the Kyoto Protocol on 16 February 2005, a new global market has been created for the purpose of emissions trading. For this new market to function well, a diverse infrastructure of tax, project finance, financial goods, commercial transactions, and trade systems at both national and international level is required.

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