Carbon trading is a transferable pollution trading system. It is an exchange of credits between nations designed to reduce emissions of carbon dioxide. Carbon credits are measured in units of Certified Emission Reductions (CERs). One unit of certificate or carbon credit = 1 tonne of carbon dioxide equivalent (CO2-e).The carbon trade originated with the 1997 Kyoto Protocol. To address the issue of global warming, the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992, with the objective of limiting the concentration of green house gases in the atmosphere. Three modes of carbon trading (Kyoto mechanism)- Emissions Trading(ET), The Clean Development Mechanism(CDM),Joint Implementation(JI). It provides monetary incentive to reduce pollution. Indian companies can make profits by selling the CERs to the developed countries to meet their emission targets. It will gain in terms of advanced technological improvements and related foreign investments, India is expected to raise $100 million annually by trading in carbon credits and Indian companies are expected to corner atleast 10 per cent of the global market in the initial years and according to industry estimates, Indian companies are expected to generate at least $8.5 billion. It will contribute to the underlying theme of green house gas reduction by adopting alternative sources of energy, Superior environmental quality, Enhanced public awareness on recycling, Improvement in the quality of life of the city and efficient resource utilization. The paper studies carbon trading as a market mechanism tool to reduce global warming with reference to India. INTRODUCTION Carbon trading is a transferable pollution trading system operated by the CDM (Clean Development Mechanism) - a part of Kyoto Protocol. It is an exchange of credits between nations designed to reduce emissions of carbon dioxide. Assessment of total no. of certificates and allotment of certificates to different carbon emitters creates the carbon market. Carbon credits are measured in units of Certified Emission Reductions (CERs). 1 unit of certificate or carbon credit = 1 tonne of carbon dioxide equivalent (CO2-e). It’s like a balance sheet. Some may have deficits and some may have surplus of certificates and it can be transferred. In carbon trading that country will benefit which can reduce pollution. It is a monetary incentive. If we pollute more than the issued certificate then monetary punishment will be enforced. The carbon trade originated with the 1997 Kyoto Protocol. To address the issue of global warming, the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992, with the objective of limiting the concentration of green house gases in the atmosphere. To supplement the convention, the Kyoto Protocol came into force in February 2005, which sets limits to the maximum amount of emission of GHGs by the countries. The UNFCCC divides countries into two main groups. A total of 37 industrialized countries were listed in the convention’s Annex – I. There are 24 countries included in Annex – II of the convention. These countries mostly were members of the organization for Economic Co-operation and Development (OECD) in 1992. All other countries not listed in the convention’s Annexes, mostly the developing countries, are known as non Annex –I countries. At present these countries are not bound by the amount of GHGs emissions that they can release in the atmosphere though they also generate GHG emissions. During the first commitment period, 37 industrialized countries and the European Community committed to reduce GHG emissions to an average of five percent against 1990 levels by the commitment period of 2008-12. During the second commitment period, Parties committed to reduce GHG
