The forthcoming implementation of the carbon credit system under the Kyoto Protocol will support the development of the biofuel industry going forward.
Starting next year, many countries are expected to reduce their emission levels below the quotas that have been set individually for each country. This is mandated by the Kyoto Protocol, which was signed and agreed to by 141 countries nearly 10 years ago.
The participating countries agreed to reduce six greenhouse gases (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs, and PFCs), associated with global warming.
The Kyoto Protocol is an amendment to the United Nations Framework Convention on Climate Change (UNFCCC), an international treaty that brought countries together for the purpose of reducing global warming and mitigating the effects of temperature increases.
Bear in mind, the world's average temperature has increased by nearly one degree Celsius over the last 150 years since the commencement of industrialization. The provisions included in the Kyoto Protocol are legally binding on all the countries that have ratified it.
The Kyoto Protocol requires industrialized countries between 2008 and 2012 to reduce emission levels to, on average, 5.2 percent below where they were in 1990. The treaty sets quotas on the amount of greenhouse gases that each country can produce in order to achieve emission reductions of up to 8 percent for regions such as the EU. On the other hand, the treaty still permits emission increases for countries such as Australia and Iceland. However, to date the U.S. and Australia have refused to ratify the Kyoto Protocol.
Under the Kyoto Protocol, every activity that reduces oxygen and produces emissions will be penalized. Meanwhile, activities that add oxygen and reduce emissions will be rewarded with what are called carbon credits, i.e., certificates awarded to countries that successfully reduce emissions. These carbon credits can be traded, and one credit is equivalent to one ton of CO2 emissions.
The Kyoto Protocol will be applied in practice by setting emission quotas for companies that typically produce a lot of emissions, such as paper mills and mining firms.
The penalties for such companies could be huge if they fail to engage in oxygen-producing activities. However, companies that exceed their emission quotas will be able to, and will also be required to, compensate for their polluting activities by buying carbon credits. Meanwhile, companies whose emissions are below their quotas will be allowed to sell their carbon credits.
As industrial development in many countries continues, the level of emissions is expected to increase. Going forward, more companies may need to buy more credits to compensate for the pollutants they make. This will push carbon credit prices up and make them a very expensive commodity. In turn, many companies will be encouraged to engage in environmentally friendly activities that could yield carbon credits.
The production and use of biofuel is regarded as a green energy-producing activity. The logic is that the more biofuel is produced, the less fossil fuels will be used, and the lower the level of emissions produced.
Plantations are considered to be oxygen-producers. Thus, their development will yield carbon credits that will be in high demand by many companies.
This opportunity has been identified by many companies, thus partly explaining the influx of investment into the plantation sector in Indonesia and other countries that are promoting biofuel programs.
Next year, the Kyoto Protocol will start to be implemented. The burden on companies in high emissions industries, such as pulp & paper, mining, cement, steel, textiles and fertilizers, will be enormous. They will henceforth need to compensate for their polluting activities with carbon credits. These will be bought and sold on international exchanges, such as the Chicago Climate Exchange and the European Climate Exchange. Credit prices are expected to be high as many industries will probably exceed their emissions quotas.
So, the development of biofuel is not only a means of reducing dependence on fossil fuels, but will also provide a way for major industrial companies to gain access to carbon credits to compensate for their oxygen-reducing activities. The implementation of the Kyoto Protocol with its carbon credit system will provide another boost for the sustainability of the biofuel development program.
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