Author: Dr. (CA) Nikhar Goyal
Abstract: Climate change has emerged as a critical global concern due to rising greenhouse gas emissions, particularly carbon dioxide (CO?), driven by industrial and economic activities. Traditional regulatory approaches have often failed to ensure efficient pollution control due to their rigidity and high compliance costs. In this context, carbon trading, grounded in environmental economics, offers a market-based mechanism by assigning a price to carbon emissions and promoting cost-effective reduction strategies. This article examines the theoretical foundation, mechanisms, and global practices of carbon trading systems, while also evaluating their effectiveness in controlling emissions. It further highlights key challenges such as measurement issues, market volatility, and equity concerns, and explores the relevance of carbon trading in developing economies, particularly India. The study concludes that although carbon trading provides an efficient tool for emission reduction, its success depends on strong institutional frameworks, transparent governance, and effective monitoring systems. Special emphasis is placed on the applicability and potential of carbon trading in developing economies, particularly India, where the need to balance economic growth with environmental sustainability is paramount. The study concludes that while carbon trading offers a flexible and cost-efficient approach to mitigating climate change, its success is contingent upon robust institutional frameworks, transparent governance, accurate monitoring systems, and sustained international cooperation.
