Morgan Stanley

(MS) - Get Report

is going green.

The big Wall Street firm says it will invest $3 billion into so-called carbon trading in a move designed to reduce worldwide greenhouse gas emissions. The firm plans to spend the money over the next five years.

Two years ago, Morgan Stanley entered the business of carbon trading on its big commodities trading desk. The new capital commitment represents a big expansion of that trading activity.

Carbon trading is one way countries can reduce their emissions of greenhouse gases under the Kyoto Protocol, an international treaty designed to reduce the risk of global climate change. Most major industrial nations are signatories to the treaty, except for the U.S.

One of President Bush's first acts after moving into the White House in 2001 was to reject the Kyoto treaty.

Companies that take steps to reduce greenhouse gases receive credits, which can then be traded on the open market. Polluters can buy these credits as way to avoid being penalized for not reducing their greenhouse emissions.

"We strongly support the use of market-based solutions to meet environmental policies and objectives," says Simon Greenshields, a Morgan Stanley managing director.