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The United Nations Framework Convention on Climate Change establishes legal provisions for market mechanisms known as greenhouse gas emission rights trading (also called emission reduction trading). Six greenhouse gases must be reduced: including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

To reduce greenhouse gas emissions, the government sets emission limits for industries. Carbon dioxide emissions are treated as economic commodities, and emission limits are achieved through supply and demand trading. Selling surplus emission allowances results in financial rewards, thereby achieving the national commitment to the overall emission limit.

In the operation principle of the Clean Development Mechanism (CDM), developed countries with emission reduction commitments provide advanced environmental technologies to establish greenhouse gas reduction projects. The emission reduction credits specifically for the Clean Development Mechanism, known as CER (Certified Emission Reduction), represent one ton of equivalent carbon dioxide emission reduction per unit.

The operation principle of Joint Implementation, as stipulated, discusses the relationships among all industrialized countries and does not involve the participation of developing countries. After calculation, it is determined that industrialized countries with greenhouse gas reduction commitments obtain emission reduction credit certificates through trading from another industrialized country’s emission reduction project.

Mainly, it involves setting emission caps. Currently, developed countries with emission reduction commitments under the treaty have established emission caps. Each country has been allocated emission target quotas, and countries with greenhouse gas emissions below the cap can sell their unused emissions quotas.

Due to the continuous increase in carbon emissions from human activities, there has been a significant threat to the environment. Measurement of carbon footprints through carbon auditing and carbon inventory is essential. Therefore, assessing the state of carbon emissions control before and the results of carbon reduction provide a reliable foundation for confirmation.

Carbon credits, also known as carbon allowances, refer to carbon emissions measurement units obtained by countries or businesses through increased energy efficiency, pollution reduction, or reduced development, certified by the United Nations or accredited emissions reduction organizations, allowing them to participate in the carbon trading market.

After the introduction of legal regulations in carbon trading markets based on carbon emissions quotas, the carbon emissions allowances of various countries have become a scarce resource, thus possessing commodity value and the potential for trading. This has ultimately given rise to a carbon trading market primarily centered around carbon dioxide emissions rights.