Carbon trading is a mechanism, where governments set limits to the amount of greenhouse gases a company can emit. Over emitting companies have to buy credits from those have excess credits due to under emission of these gases.
This is based on the Kyoto Protocol, which implemented a similar system at a more macro level, with emission limits being set for countries.
The Indian high commissioner recently made a statement on the sidelines of the G8 summit, rightly pointing out that these limits cannot be set at the risk of development.
The developed countries have had their fun industrializing and polluting the atmosphere. Its time for them to lower their emissions and not set caps for developing nations. If the developed nations under emit, they could trade their carbon credits with the developing nations, maybe even donate them.
With global warming becoming a hot issue, the premium on carbon credits could rise, increasing demand in a low supply market. The next war could be fought for carbon credits…