ncrease in the pollution levels over a period of time will lead to serious environmental hazards such as global warming, droughts, floods, extinction of species, spread of diseases, etc. The impact of these hazards is already being felt in many parts of the world. However, it is difficult to motivate countries to reduce pollution, as the process of industrialization has to go on. Hence, representatives of various countries came together at Kyoto in Japan to bring about a feasible solution to the problem of pollution under the aegis of the Kyoto Protocol and United Nations Framework Convention on Climate Change (UNFCCC). This paper aims to bring to light, the mechanism through which countries get an incentive to reduce the Greenhouse Gases (GHGs) in the atmosphere and thereby reduce pollution through the nouveau concept of carbon credits. Carbon credits are certificates issued to countries that reduce their emission of GHGs which cause global warming. These certificates can be traded in the international carbon markets.
The three mechanisms of carbon trading, namely International Emissions Trading, Joint Implementation and Clean Development Mechanism are discussed in detail. India being a developing country, is a major beneficiary of the carbon credit market. Indian companies have a strategic advantage as the cost of emission reduction in India is very low as compared to the developed countries. The many projects initiated by Indian companies after January 1, 2000, in diverse areas such as energy efficiency, co-generation, natural gas, alternative auto fuels and hydel power, will also add to the country's dominance as a large seller in the carbon credit market. In the end, the paper discusses the advantages and drawbacks of carbon credits and the opportunities that carbon trading offers to developing and low polluting countries in future.
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