The Carbon trading is one of the fastest growing financial markets in the world. It is the most visible result of early regulatory efforts to mitigate climate change, and grew out of the Kyoto Protocol, which was adopted in 1997. The protocol requires that by 2012, developed countries will achieve greenhouse gas emission reductions of at least 5% against baseline levels of 1990. To help countries achieve that goal it established the Clean Development Mechanism (CDM), which promotes sustainable development in developing countries while spurring cost-effective reductions in greenhouse gas emissions in the more polluting developed countries. India offers a large potential for CDM because of its inherent dependence on fossil fuels for development. So countries with relatively low abatement and transaction costs like India are a major attraction for CDM projects.

The market is emerging strongly despite various global factors, according to the World Bank. Regulation that caps greenhouse gas emissions has spawned an emerging carbon trade that was valued at US $64 billion (?47 billion) in 2007. For the third consecutive year, China was the world leader in CDM supply with a 73% market share in terms of 2007 transacted volume. Brazil and India, at 6% market share each, transacted the highest volumes after China. Africa followed with 5% of the market.

India is the fourth largest emitter of greenhouse gases in the world in absolute terms. But its per capita emission of 1.2 tons per person per year is much lower than the West's figure of 20 tons, or than the global average of 8 tons. If India has to realize its ambitions of economic growth and take large sections of its population out of the low income trap, it must grow. That means greenhouse gas emission reductions will continue to be one of the country's greatest challenges.