Multi-Benefit Bio-Remedies
for the Climate's Carbon Ills

Where most CO2 can go and rightfully should be
Understanding Carbon Policy

For a brief overview of carbon policy since Kyoto, see the excellent summary below by Aon Carbon Risk Management. For more detail and the latest developments, please acquaint yourself with the following links.

Climate Change and the Kyoto Protocol
Courtesy of Aon Carbon Risk Management

Planning to deal with the changes that climate change legislation will create is generally regarded as one of the most critical issues facing any significant user or generator of energy. In February 2000, climate change was described as "the world's most pressing problem" by the World Economic Forum in Davos.

The financial implications of climate change legislation are not often appreciated. Marginal emission reduction costs, embedded carbon in manufactured products and the potential for new emerging energy technologies to transform emission profiles will create opportunities for new entrants and existing suppliers that adapt. Equally, it will penalise companies that have a carbon risk exposure without proactive risk management strategies.

The Kyoto Protocol, the international legislation designed to stabilise greenhouse gas emissions, commits developed countries (known as the Annex 1 countries) to an absolute cap on their emissions and provides a mechanism to measure national compliance. It also enshrines the concept of emission trading, which will reduce the economic impact of emission reduction compliance by enabling the transfer of economic costs and benefits across borders. This cost efficient way to meet compliance will generate significant additional returns for projects and capital investments which have low marginal costs of emission reductions or zero of low emissions.

The Protocol lays the compliance obligation on governments in the form of an Assigned Amount, which represents the cap in tonnes CO2 emitted per annum. Governments can only achieve the targets by assigning the responsibility to the energy users. This will be in the form of emission caps, fiscal incentives or other legislative inducements.

Emission trading will be based on three mechanisms - cap and trade of national emission allowances, purchase of emission reductions generated by eligible projects in Annex 1 countries or through similar programmes in developing countries where currently, additional compliance rules and transaction costs will apply. Therefore in the new economy, the environmental impact of activities previously considered free will now have real, quantifiable and tradable values.

What is certain is that the implications of this single objective, to reduce CO2 emissions, effects practically all energy generation and consumption throughout the world. Over the next 10 to 15 years, the manufacturing and service sectors will:

  • See a massive shift in energy generation and use options, resulting in rapidly escalating demands for new low to zero emission technologies;

  • Create monetary values against activities and services that until now were regarded as either free or non-revenue generating, impacting corporate P&L and balance sheets

  • Face new financial and management obligations at national and corporate levels - previous voluntary ethical codes and business practices on energy consumption will become mandatory compliance requirements.