This post is not to elaborate deep on the issues of carbon credits, emission trading and the deep intricacies of trade in such a contentious industry. You can read about these things by visiting the following links:
Carbon Offset:
http://en.wikipedia.org/wiki/Carbon_offset
Carbon credit:
http://en.wikipedia.org/wiki/Carbon_credit
Emission Trading:
http://en.wikipedia.org/wiki/Emissions_trading
Carbon Trade Watch (recommended):
http://carbontradewatch.gn.apc.org/
Carbon trade, carbon markets, carbon colonialism, CDM (clean development mechanism), free market trade of pollution etc. are complex issues. I am not going deep into the ethical, moral, and long term risks that this dangerous market poses to mankind, i need a lot of time to complete my assessment of carbon markets. However i can make one comment with certainty, there is no price that can be associated with our environment!
I have an interesting situation in mind in this futuristic world in which carbon emission units (CO2) can be bought and sold as a commodity not just by large corporations but also by individuals. I create a hypothetical future world in which carbon credits have been extended to individuals too, i.e. regular blokes like you and me have all our activities linked to the carbon trade market and we are able to buy/sell carbon credits proportional to our needs and requirements.
Hypothetically it would be right to say that if i own a car, there would be a carbon offset unit (equal to one tonne of CO2 emission) that would be associated with my car. Now i can buy a car and claim that i use the public transport to reduce CO2 emissions (to satisfy the condition of (sic)additionality) though i would have done so anyway in order to save money! Effectively depending on my car make and model i could save up to three carbon credit for every 1000K (assuming my current car emits 300g/Km of CO2). For every 1000K traveled in the public transport system i rake up 3*355 = 1065USD = ~ 45000 Indian Rupees (carbon unit costs can vary between 10 - 700 USD, taking an average i get 355 USD!).The average cost to just make a trip around bangalore's ring roads (~100Kms) on a BMTC bus would be about Rs30. Cost to travel a total of 1000Kms in BMTC buses ~Rs300. Earnings for having traveled in BMTC on the carbon exchange Rs45000. Whoa i make a windfall profit of 44700! In such a hypothetical future i would love to buy the most polluting car, second hand ofcourse, use it once in a while, become a travelling salesman, and use the public transport for my travels! My income over and above my salary would be ~Rs44700!!!!
Well i must say that the situation that i have described is not a practical one; a lot of simplifications, assumptions and exaggerations have been incorporated. However I believe it does serve the purpose to show why a "carbon market" really does not work out as an "economic incentive" based method to reduce CO2 emissions.
There are a number of contradictions, a number of ethical and philosophical implications for us in making the future of our environment a tradable commodity. It may never work!!!!