The third mechanism of Kyoto Protocol introduces a concept of buying or selling of the Carbon Emission Reduction (CER) certificates, also known as Carbon Credits. These credits are quantified and verified by UNFCCC. Extra credits generated by CDM projects can be sold in the international carbon market.

These credits are quantified in terms of carbon emission being offset by the project.

1 carbon credit = 1 tone of carbon emission reduced. Price of a credit: €6 /tone*

The buyers of these credits are primarily from the Annex I or the developed countries. The cost of initiating CDM projects and generating these credits is lower in the developing countries. Thus a significant opportunity exists for developing countries to generate profits by reducing their own GHG emissions and reap extra by selling additional credits. CER or Carbon Credits with other emission reduction credits like VOC, EU allowances form a new trade commodity, a new trade market dealing in “Green Currency”.

The prices of these credits will depend on demand and supply equilibrium. The market will behave like any other commodity market with prices fluctuating based on the demand and supply. Prices/tone CO2 may go up, if the supply is lesser than the demand in the market. Currently international carbon market works on the day today basis with prices fluctuating just like a stock trade market. According to analysts and trade predictions the global market is expected to exceed US$100 billion by 2008, making it as one of the top commodity of trade. * The prices are subject to change per day basis.