STEVE CANNANE, PRESENTER: In the forests of the Amazon, a new type of hunting is on the increase.

Carbon hunters are assessing each tree for its worth, its carbon price.

The carbon in each tree has become a lucrative commodity as international companies buy and sell it just like any other commodity.

If the Australian Parliament passes the carbon tax legislation, Australian companies will ramp up involvement in this trade in a big way from 2015.

But there are concerns the scheme has serious flaws and lacks independent oversight.

In a moment we'll talk to Henry Derwent in Paris. He's the CEO of the International Emissions Trading Association and represents the big corporations who are a part of the global carbon trading regime.

But first, this report from Lateline's Suzanne Smith.

SUZANNE SMITH, REPORTER: The Amazon's wild forests used to be the preserve of explorers, animal hunters and scientists. But now, there is a new type of hunter. They capture what they are looking for with a tape measure and a pen.

They are the carbon rangers, measuring the carbon dioxide content inside the trees.

Mark Schapiro is the senior correspondent for the Centre of Investigative Reporting in California.

MARK SCHAPIRO, SENIOR CORRESPONDENT CENTRE FOR INVESTIGATIVE REPORTING: So how much carbon would you think is in this tree right here?

RICARDO DA BRITEX, CHIEF SCIENTIST (voiceover translation): I think it probably contains between 90 to 100 kilos of carbon.

SUZANNE SMITH: Ricardo da Britez is in charge of the carbon counting here.

They are the carbon rangers. Measuring the carbon dioxide content inside the trees. Mark Shapiro is the senior correspondent for the Centre for Investigative Reporting in California. The measurements he is recording are being followed around the world by financial institutions such as Goldman Sachs and Citibank who are in the market to buy and sell the carbon.

MARK SCHAPIRO: If carbon is basically selling on the market - what does it cost now? About $10 a tonne?

RICARDO DA BRITEX: Yes.

MARK SCHAPIRO: So basically, this tree is worth ...

RICARDO DA BRITEX: $1.

MARK SCHAPIRO: $1. $1 in the carbon market.

SUZANNE SMITH: So who owns the carbon in this particular tree?

RICARDO DA BRITEX (voiceover translation): The credits from this tree belong to General Motors.

SUZANNE SMITH: This area of wild Amazon rainforest is known as Guaraquecaba. Environmental groups have spent years trying to raise funds to preserve it, but it was only when a price was put on carbon with the Kyoto agreement that private capital started to flow.

In 2000, American Electric Power bought enough Amazon rainforest to cover the whole of Manhattan. Then came General Motors and finally Chevron Oil. These companies now own the carbon credits in this forest.

Under the Kyoto agreement, the cheapest way for companies to meet their emissions reductions targets is to buy offsets such as forests that soak up carbon dioxide.

MARK SCHAPIRO: They can buy the right to actually protect the trees and promise that the trees will not be cut down in return for continuing to emit at their existing levels back at home, whether it's in the United States, Europe, Australia, wherever that might be.

SUZANNE SMITH: The carbon market is worth about US$300 billion today. That figure is expected to rise to US$2 to US$3 trillion in the next decade. But Mark Shapiro says there are serious consequences to this carbon trade, especially for local farmers.

Since the reserve was created, this landowner can no longer gather food from the area.

This one endangered Harta palm tree can feed his family of five people.

And now that the carbon in this forest is a tradeable commodity, law enforcement has been stepped up. The so-called Green Police, a branch of the military, are using heavy-handed tactics to protect the reserves.

Another farmer whose land borders the reserve entered the forest to find wood to fix the leaking roof on his house.

ANTONIO ALVES, FARMER (voiceover translation): Then two police officers showed up. One puts a gun right here. I looked at him and turned off my chainsaw. They handcuffed me right there.

SUZANNE SMITH: Antonio Alvez spent 11 days in jail for the crime.

Other local landholders are paid not to cut down the trees. Families receive $25 a month, but you can only access your payment via an ATM machine, but for some it is a two-day round trip to get to the ATM and half the stipend just goes on travel.

Another way to get carbon credits is to purchase them from a company in the developing world, one that has surplus emissions to sell.

If a company is emitting less than its emission target, it can sell the surplus. But this part of the scheme, known as the clean development mechanism, or CDM, has been severely rorted in China.

The scandal centres on a toxic greenhouse gas known as HFC-23, a byproduct in refrigerant manufacturing. European companies have been paying Chinese factories that produce the toxic greenhouse gas 70 times what it normally costs to eliminate the gas.

MARK SCHAPIRO: Because of the huge amount of overpayment, the Chinese manufacturers have started increasing the production of the refrigerant gas in order to produce more of the greenhouse gas in order to be paid to reduce the quantity of greenhouse gases.

So it has actually become more profitable to be paid to reduce greenhouse gases than it has been to produce the refrigerant.

And just to add another twist to the irony, the underlying refrigerant at issue here is actually outlawed in the United States as well as in Australia.

EVA FILZMOZER, CDM WATCH: The whole stakeholder consultation has to be improved so that harmful projects that can be detected from the very beginning and should not be included in the CDM.

SUZANNE SMITH: Eva Filzmozer works for CDM Watch in Brussels. Her organisation monitors the carbon trade. She says another major problem is a lack of independent auditing of the companies involved in the scheme.

EVA FILZMOZER: The auditing system does not work as it should. There is issues with conflict of interests in the CDM executive board. That is the body that actually adopts decisions and registers projects.

MARK SCHAPIRO: There have been a lot of questions raised, including by me, about the potential conflicts of interest involved when you have carbon project developers who essentially pay the auditors to affirm their claims of their own emission reductions. So you have a system where the auditors are being paid by the audited.

SUZANNE SMITH: But despite these inherent contradictions, Mark Shapiro says the scheme should remain with some significant changes.

MARK SCHAPIRO: With very strong enforcement, with aggressive monitoring and with co-operation among the people who live in the forest, you may be able to make this a workable means of protecting tropical forest.

SUZANNE SMITH: Suzanne Smith, Lateline.