Every country is making efforts to reduce the concentration of greenhouse gas emissions, either voluntarily or due to the existent or expected regulatory constraints. This has created an opportunity for the trade of emission credits both within and outside of the regulated area, thereby laying the ground for a global "carbon market". Among the emissions markets for environmental services currently in operation, the carbon market has the widest reach. The objective of this paper is to review where these markets stand as of today and to throw light on some of the trends that are expected to emerge in the near future. The authors have attempted to discuss issues related to carbon markets, which involve different underlying assets, pricing mechanisms, contractual structures, and risk management. The paper also discusses the global scenario and the opportunities in the Indian context.

The global carbon market has emerged in a big way and has affected emitters of greenhouse gases (GHGs) and their markets in ways that few anticipated a year ago. It has become one of the most critical factors in deciding how an organization does its business and whether it can sustain itself in the post-Kyoto regime. No longer can the developed countries of the world pollute the environment and get away unnoticed. As a result, some serious questions have arisen with regard to designing the environment strategy that helps in building long-term gains for the business.

Compared to 2004, the value of the carbon market increased by 2500% to €9.4 bn in 2005 and it now involves players from about 150 countries (Point Carbon, 2006). Still, s feel that the traded volumes compared to the underlying potential are still far below what we can expect in other markets. However, there are important issues like post-2012 uncertainty and non-ratification by US which need to be addressed before the market can live up to the global sentiments. The structure of the paper is as follows: First, the concept of emissions and carbon trading is discussed and then the global scenario in carbon trading is discussed. Its present trend in India has also been examined, followed by a sketch of investment opportunities in carbon trading. And, finally, the paper ends with a conclusion.

Applied Finance Journal, Global Carbon Market, Risk Management, Greenhouse Gases, GHGs, Environment Strategy, United Nations Framework Convention on Climate Change, UNFCCC, European Union Emission Trading Scheme, EU-ETS, Chicago Climate Exchange, CCX, Internal Rate of Return, IRR, Multi-Commodity Exchange of India Limited, International Emissions Trading Association, IETA.