Carbon credits are very attractive to hedge funds that can make a clean profit to hedge their position in other volatile portfolios that they may hold.

The Kyoto Protocol (1997) was the first international agreement made to control the emissions of toxic gases generated by the burning of fossil fuels, also known as greenhouse gases. This was found necessary due to the global warming that is taking place as a result of the fast paced industrialization around the world. With about 160 countries signing the agreement, an estimated 55% of the global greenhouse gases will be taken under control.

In December 1997, in the Japanese city of Kyoto, an agreement was negotiated to control the emission of gases like carbon dioxide, sulfur dioxide and nitrous oxides; the production of which rose manifold in the past century as a result of rapid industrialization. This agreement, known as the Kyoto Protocol, was arranged under the aegis of the United Nations Framework Convention on Climate Changes (UNFCCC), and divided the world into two groups, namely the developed and the developing countries.

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