Lately, the global warming concerns have been taking a wide dimension, not merely environmental, otherwise, economic and social ones. Despite scientific uncertainties, most of the studies believe that increase in globally averaged temperatures is very likely due to the observed rise in anthropogenic (man-made) greenhouse gas (GHG) concentration.

Concern about GHGs increase led to carbon trade emergence as an attempt to minimize excessive emission. Carbon market is based on many principles and goals formulated and implemented in order to address countries’ interest with different ideas. Institutional apparatus with complex rules and organizations was demanded to bear a global agreement between parties with different profiles. Rules, norms, regulation, contracts were necessary to support carbon market, and they set out the rights and obligations at an international level. New Institutional Economics offers useful explanations, important and essential thoughts in order to understand global emissions reduction settlement and carbon credit trade establishment.

One important market that use carbon market as a emission reduction tool is established by Kyoto Protocol. Kyoto treaty introduced economic mechanism to assist goals achievement and principles established by United Nations Framework Convention on Climate Change. The main conclusion established that countries belonging to Annex I (developed countries and Economies in Transition) should reduce its combined greenhouse gases emission by at least 5.2% between 2008 and 2012 when compared to 1990. To facilitate the reduction targets fulfillment Kyoto Protocol created trade instruments called flexible mechanisms, by which an Annex I country may overcome emissions limit, if at the same time it provides an equivalent reduction in other country, ensuring there is no global net emissions increase. In other words, an Annex I country will have two alternatives for achieving the goals, according to their cost-benefit analysis: investing in more efficient technology in terms of GHG emissions in their own country or use Kyoto flexible mechanisms.

Kyoto Protocol and its updates understanding are rather complex, since they are documents that use technical language based on an international law understanding. Rules are not always objective and, in some aspects, are characterized by the absence of clear definitions causing criticism and debates that have been occurring since the begining. Kyoto, firmed in 1997 determined a developed countries emissions ceiling, considering a strong institutional apparatus support.

Even before its establishment, there were already other carbon markets in process and EU ETS (European Emission Trade Scheme) is the most relevant Program in terms of emission reduction volume. EU ETS is one of the key policies introduced by the European Union to help meet the EU’s greenhouse gas emissions reduction target under the Kyoto Protocol. The EU ETS uses a market-based mechanism to incentivize the reduction of greenhouse gas emissions in a cost-effective and economically efficient manner. Differently than Kyoto, system operates through the allocation and trade of greenhouse gas emissions allowances throughout Europe, not in a emission reduction carbon credit.

In order to understand carbon trade, it is interest of this work to analyze main emission reduction programs, such as Clean Development Mechanism and EU ETS, in an Institution Economics view. In order to verify the relevance of both Programs, this work claims to show common and different characteristics between these two carbon markets, showing carbon overview as prices, countries project distribution and main sectors. To fulfill objectives, this article, also presents some views related to global warming, theories related to certified emission reduction and carbon markets antecedents.