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Put most simply, at the end of a defined compliance period a company that emits greenhouse gases is required to possess a number of credits or allowances equivalent to the amount it emits. A company with low emissions reductions costs can invest in emissions reducing activity and can sell unused credits to a company with high reduction costs and who has been unable to meet their cap.

Nicola Steen is vice president of CO2e.com, an online broker under the ownership of American firm Cantor Fitzgerald: "The premise of emissions trading is that people are trying to reach the goal of a reduction or limit on greenhouse gases as effectively as possible at least cost. Trading allows them to get to that result as efficiently and economically as possible."

While the UK market, the first regulated market in the world is still in its infancy, trading has been going on internationally on a much larger scale, with an estimated 200 million tonnes of Carbon dioxide equivalent (CO2eq) being traded to date. Much of this has taken place in the USA where big companies are trying to get ahead of legislation, attempting to demonstrate to government through trading that they can reduce their greenhouse gas emissions without the need for the imposition of stringent caps and targets.

Steen is hopeful that trading activity will begin to increase as certain sectors reach the milestones set under the Climate Change Agreements. She believes that emissions trading should begin to encourage companies to look for new and inventive ways to reduce emissions: "We should see the effect of creating innovation. Rather than being like a tax, individuals in their own departments will start to work out that by doing certain things reductions can be made. There are a lot of people still to come to market. A lot of them are still verifying their emissions baselines and might not have the resources to trade yet, but we think there will be a lot more people in the autumn because of the Climate Change Agreement milestones. They are starting in the winter period and companies won't want to be out of balance."

The amounts of carbon that companies trade are worked out between the buyer and the seller and are facilitated by brokers like C02e. Individuals are able to go onto the site, convert the amount of emissions that they need to offset into the CO2 equivalent, and find a suitable project in which they would like to invest. This is where the flexibility of the market comes into play, as Steen points out: "The beauty is that you have the whole global market to play with because scientifically it doesn't matter where in the world you reduce a tonne of carbon, it has the same benefit." It is this retail market that is expected to take off in the coming years, with more companies, and even individuals looking to buy reductions from specific projects that they have a concern for, and would therefore be happy to pay a higher price for. "People don't just want the cheapest tonne, they want the tonne from the project that is helping a certain community, somewhere they feel comfortable putting their money."

While emissions trading in the UK seems to have started slowly in its first year, it appears that the market has the potential to become extremely prominent in the coming years. The vast majority of UK companies who are trading or aligning themselves to trade, are primarily there out of the necessity to meet their targets and avoid the financial punishment for failure to comply with their climate change agreements.

Speaking at a seminar to property developers entitled 'Making green buildings pay', Steve Drummond, chief executive of CO2e said: "The EU has announced a mandatory scheme which is on track to make emissions trading compulsory on greenhouse gases across the whole of the EU by 2006. This can only mean that energy prices will go up. There is already a big international market, it's happening now and it's growing very fast. The UK scheme was the first in the world of its kind and it is very innovative in the way it is doing things but it is quite small."

The time would seem to have come for the debating about emissions trading to stop, and for the uptake to increase. It is here and it is in operation. Those with sufficient foresight are already educating themselves as to how it works, and assessing where the benefits will lie for them. We are all well aware of the damage that buildings do to the environment, and what needs to be done to improve the situation. Emissions trading provides companies and individuals with another option as a way of reducing emissions, and it would seem to be to their benefit to get involved sooner rather than later, for their own sake, and for that of the environment.

For more information on emissions trading visit the CO2e website: www.CO2e.com