Emissions trading refers to a mechanism for trading legal emissions rights as commodities with the aim of controlling the overall emission of pollutants into the environment and optimizing the allocation of emissions quotas. As a concept, emissions rights trading dates back over thirty years. However, it was not until the advent of the Kyoto Protocol which became effective in 2005, that the international community established the “Clean Development Mechanism” (“CDM”), a global emissions reduction regime. Under this mechanism, every developed country is required to commit to a certain amount of emissions reduction by a specified deadline. Those countries which generate more emissions than their certified emission reduction (“CER”) may purchase CER credits from the countries which have unused CER credits or which are not subject to emissions reduction commitments. In other words, enterprises in different countries may buy and sell rights to emit carbon dioxide by means of climate exchanges in a similar manner as they would trade stocks in stock exchanges.

By Xu Ping, Partner, FDIContinue Reading Establishment of the Tianjin Climate Exchange