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113- www. energy- future. com 6.6- Understanding oil and gas to 2020, by which time the EU aims to have achieved emissions cuts of 20%, com-pared with the 1990 level. The credits traded are known as " allow-ance" units, each representing a tonne of CO2. The sheer number of credits generated by the EU ETS means the most straightfor-ward way to trade them is to set up big ex-changes as intermediaries, much like stock and bond markets. Trading on these ex-changes determines the price at which al-lowances change hands. The biggest estab-lished so far is London's European Climate Exchange ( ECX). Several other nations have their own schemes in development. Australia - one of the world's largest CO2 emitters per cap-ita because of its high reliance on coal for power generation - hopes to introduce its own trading scheme in the next few years, for example. But the big prize for cap- and-trade proponents would be to get the world's largest economy, the US, on board. Going it alone The reluctance of the government of George W Bush to adopt emissions- cutting policies prompted several states to attempt to go it alone. California - one of the world's top- 10 economies on its own - together with six other US states and four Canadian prov-inces decided in 2008 to set up their own trading scheme. However, it may no longer be necessary: President Barack Obama, who is supportive of climate- change meas-ures, wants to introduce a US- wide scheme, similar to the EU ETS. These national and regional initiatives, and others that will follow, are all well and good, but unless the countries involved co-operate by merging their schemes or mak-ing the credits from one tradable in the oth-ers, emissions trading is unlikely to max-imise its potential. International negotia-tors are putting a lot of effort into resolv-ing how this can be done, ahead of the Copenhagen climate change summit in late 2009, where emissions trading will be one of the hottest topics. Already, one of the main problems for reg-ulators is deciding how to calculate emis-sions from movable sources, such as planes or ships, which may start their journey in one part of the world and end up in another, with different emissions regulations. How should the cost of emissions be allocated between the regions? What about the emissions made in international waters or airspace? The EU is working towards including emissions from all flights landing in or de-parting from the region in the ETS, from 2012. But that has already caused a clash with the US, which, under the Bush admin-istration, threatened retaliatory trade sanc-tions if US airlines landing in Europe were required to fork out to cover the cost of some of their emissions. A solution to that problem may yet be found, but it illustrates the complexity of getting everybody on board the same low- carbon bandwagon. ?? One of the main problems for regulators is deciding how to calculate emissions from movable sources, such as planes

114- www. world- petroleum. org 6.7- Understanding oil and gas Biofuels: explained With the world's largest economies pushing increased usage, biofuels are here to stay The internal combustion engine is a part of virtually everybody's life - like it or not, it's here for the foreseeable future ( see p20). But we need to cut down on the amount of harmful carbon emissions it produces. That's where biofuels come in: they offer the prospect of reductions in carbon emis-sions without the need to replace or radi-cally alter existing transportation infrastruc-ture. Hydrogen and electricity are interest-ing alternatives for powering vehicles, but they require a complete redesign of the way vehicles work and can't be used with exist-ing cars, whereas biofuels can. Biofuels are created by processing veg-etation high in sugars or vegetable oil into bioethanol and biodiesel. These can be blended with, or even used instead of, con-ventional gasoline and diesel - and they produce much less pollution when burned than conventional refinery fuels. In the EU, one of the world's biggest vehi-cle markets, nations are being asked to raise the amount of renewable energy - mainly biofuels - used for transport to 10% of total fuel consumption by 2020, compared with an average of well under 5% now. That's a significant increase. Similar measures are being implemented, or targeted, around the world; this will require billions of dollars in financial incentives, but proponents believe the environmental benefits will be worth all the effort and money. The biofuels industry is already well es-tablished in the major economies. The US, the world's biggest biofuels manufacturer, produces bioethanol from maize ( known lo-cally as corn) cultivated across the Midwest. Germany produces biodiesel from rape-seed, among other feedstocks. Brazil, the world's biggest ethanol exporter, pioneered the production of ethanol from sugar cane, taking full advantage of its ample land re-sources and sub- tropical climate; it has also developed flexible- use, or flex- fuel, cars that can run on any ratio of gasoline and biofu-els. China, India and other fast- developing economies in the Asia- Pacific region are also turning to biofuels as part of their ef-forts to find viable new transport fuels. According to the US Department of Energy, total annual biofuels production across the world could increase more than sixfold by 2030, from 12 billion US gallons in 2005 to 83 billion US gallons in two decades' time. Fuelling change? Exactly what form biofuels in use in a dec-ade's time will take remains to be seen, but a big change seems to be in the offing. The main biofuels on the market today - so-called first- generation biofuels - are bioeth-anol and biodiesel, which can be made from a variety of raw materials, but are generally derived from crops such as maize, sugar cane, palm oil and rapeseed. However, there are doubts over whether they make a positive contribution to the environment: in Biofuels are created by processing veg-etation high in sugars or vegetable oil