London (CNN) -- Debate is rife in Australian political circles about whether carbon trading is the way forward for climate change abatement.



Carbon trading is said to be one way to reduce greenhouse gas emissions.



There, Prime Minister Kevin Rudd is looking to introduce a mandatory carbon trading system by 2010 which will cap the amount of pollution industry can release. The proposed Australian system will be similar to the European Union emission trading system which was established in 2005.



With Phase 1 of the European system complete, there are a few lessons about carbon trading that Australia -- and other countries looking to go down this path -- could benefit from.



So what is carbon trading?



Carbon trading -- also known as "cap and trade" -- is a system designed to cut the carbon emissions which contribute to global warming. Generally in a market-based cap and trade system, a central authority -- such as a government or international body -- sets a limit on the amount of carbon which can be emitted and then divides this amount into units which are allocated to different groups. These units can then be traded as any commodity would.



Carbon trading can occur both between countries and amongst industries within countries.



A second approach to carbon trading involves a country or business generating carbon credits by investing in "green" projects -- usually in developing countries -- that are said to reduce emissions.



Why is it necessary?



According to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) there is unequivocal evidence that human activities have contributed to a gradual warming of the planet which has resulted in a change in climate. The IPCC report provides scientific evidence of change including to the duration of seasons, rainfall patterns and an increased frequency of extreme weather events.



Industrialization is recognized as a key factor in the increase in greenhouse gas (GHG) emissions in the atmosphere and according to the IPCC the world has warmed by an average of 0.74°C in the past 100 years. The IPCC predicts that if GHG emissions continue to rise at their current rate, this century will see a further 3°C rise in the average world temperature.



While the consensus of the scientific community (via the IPCC) is that action must be taken to avert the worst impacts of climate change, economic arguments about the cost of climate change abatement -- advanced by countries like the U.S. and at one time Australia -- have in the past proved an impediment to action. A carbon trading system is said to be one way that countries can look to make greenhouse gas emissions cuts with minimal economic impact. Do you think carbon trading is the way to reduce greenhouse emissions?



What trading systems exist?



Established in 2005, the European Union Emissions Trading Scheme (EU ETS) is the largest multi-national, multi-sector CO2 trading system in the world. The ultimate aim of the system is to ensure that EU Member States are compliant with their Kyoto Protocol commitments and to do this the most energy-intensive industries are allocated carbon permits by Member States which allow them to emit a certain amount of CO2. If these companies want to emit more CO2 than their permits allow for, they are able to buy them from more efficient companies with spare permits.



The EU ETS takes in around 12,000 installations which account for around 50 percent of EU greenhouse gas emissions from industries such as power, steel and cement manufacture. According the World Bank, the EU ETS contributed $50 billion of the $64 billion traded in the carbon market in 2007.



The second largest carbon trading system exists under the United Nations Kyoto Protocol. The Protocol -- which sets binding emission targets for 37 industrialized countries -- permits emissions trading in order to help countries meet their agreed upon targets. Countries have agreed to an average 5 percent cut in greenhouse gas emissions, compared to 1990 levels, by 2012 and carbon trading is one way to meet this quota. By December 2008, the EU ETS will link up with the UN trading system to create a more global scheme.



The Clean Development Mechanism is a further carbon trading mechanism of the Protocol which allows industrialized nations to claim
what can reduce greenhouse gas emissions? What is said to be one way to reduce greenhouse gas emissions? What impact does existing carbon trading systems have on emissions to date? What serves as a good lesson for new trading systems? what serves as a good lesson? What impact does carbon trading is said to have on greenhouse gases?
Carbon trading Carbon trading reduce greenhouse gas Carbon carbon trading gas emissions cuts with minimal economic
question: what can reduce greenhouse gas emissions?, answer: Carbon trading | question: What is said to be one way to reduce greenhouse gas emissions?, answer: Carbon trading | question: What impact does existing carbon trading systems have on emissions to date?, answer: reduce greenhouse gas | question: What serves as a good lesson for new trading systems?, answer: Carbon | question: what serves as a good lesson?, answer: carbon trading | question: What impact does carbon trading is said to have on greenhouse gases?, answer: gas emissions cuts with minimal economic