Carbon emission constraints are creating quite a stir in Washington. Convinced that the country must act, lawmakers on Capitol Hill are seeking direction from members of the European Union on how to establish an emissions trading scheme.Trading carbon emissions is a free market approach to controlling such greenhouse gases that are tied to climate change. European representatives along with participants in the trading program established there testified before a congressional panel that the system covers 45 percent of all carbon dioxide (CO2) emissions while giving industry a reasonably-priced solution to reducing their carbon levels.

"The initial three-year learning period has proven to be extremely valuable ...," says Jos Delbeke, environmental commissioner for the European Union, before the U.S. Senate Energy and Natural Resources Committee. "The learning period means that both regulators and companies are much better prepared for the trading period 2008-2012."

The establishment of an emissions trading plan could be critical to cutting CO2 levels. As governments around the globe continue to restrict the release of harmful pollutants, cap-and-trade systems involving carbon will take root. The thinking is that by trading credits, a "price" for emission levels is set that will send the proper investment signals to those who have to decide how to cut their emissions. Installing environmental controls, for example, may or may not be cheaper than buying carbon credits.

In the case of the European Union, it began its emissions trading scheme in January 2005 with 27 participating nations. At present, the cap only covers CO2 but other greenhouse gases may eventually be included. The program runs in two phases: The first one started in 2005 and ends at the end of this year. The second phase runs from 2008 through 2012. Each country has submitted a "national allocation plan" that is now under review by the European Commission.