Carbon trade was formally established following ratification of the Kyoto Protocol- signed by 37 member countries in 1999 (effective 16th February 2005). By May 2008 over 182 countries had signed. The Kyoto protocol creates legally binding obligations for 38 industrialised countries to reduce their emissions of greenhouse gases to an average of approximately 5.2% below their 1990 levels over the period of 2008-2012.

The convention divides countries into two groups:

- Annex I parties, industrialised countries who have historically contributed the most to climate change with quantified targets for reducing GHG emission.

- Non-Annex I parties, primarily the developing countries without any legally binding and quantified targets for reducing their GHG emissions.

The Kyoto Protocol allowed companies (established within the Kyoto Protocol countries) that cut emissions below set levels to establish and sell their approved carbon credits to other slower moving companies who are obliged to purchase or reduce emissions by lower carbon emission production activity.

The Carbon Trading industry is the world's fastest growing market commodity which is likely to exceed one trillion U.S. Dollars in annual trade value. Trade in 2007 Volume of (mtCO₂t) metric tons - increased 58% over 2006.