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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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