9/2/07 (Reuters)  LONDON - Biofuel production in developing countries including Brazil and Indonesia could soon earn carbon credits using lucrative north-south incentives, the new head of carbon trading at the UN's climate body said on Thursday.
 
Biofuel production is already booming in countries like Brazil, the world's largest producer of ethanol from sugar, and Malaysia and Indonesia, the biggest producers of biodiesel from palm oil.
Producers could soon have more good news as the UN explores whether to allow biofuels to qualify for its US$3 billion carbon trading scheme, called the Clean Development Mechanism (CDM).

The alternative transport fuel generates fewer carbon emissions than fossil fuels when burned because the plants they are derived from absorb the same gases, and is enjoying a purple patch as countries try to kill with one stone the problems of oil dependence and global warming.

"It's being discussed at the moment," said Halldor Thorgeirsson, installed on Monday as the director of sustainable development mechanisms at the UN's climate change body.

"It could be a methodology in the first Kyoto period (from 2008-12). Once you solve the methodological issues then there's no problem."

Trading under the Kyoto Protocol for global warming allows rich nations to meet their emissions targets through 2012 by funding cuts in poor countries, earning carbon credits which they can then offset against their own emissions.

So far CDM has focused on destroying potent industrial greenhouse gases, and the main technical hurdle for allowing biofuels to participate has centred on double-counting: whether to allow a developing country to earn carbon credits where the biofuels are produced or where they're consumed.

Developing countries are reluctant to take independent steps to address climate change, saying developed countries are mostly responsible for the problem.

Carbon trading under Kyoto has provided a convenient way to get rich countries to take the burden of targets but achieve these cheaply by paying developing countries to make the reductions.


BRAZIL BLAST

Inclusion of biofuels would be welcomed by Brazilian President Luiz Inacio Lula da Silva, who this week blasted carbon trading under Kyoto, pointing out that Brazil had not received any money to help fund its biofuels industry.

Brazil will invest 17.4 billion reais (US$8.3 billion) in renewable fuels over the next four years.

"No country is revolutionizing its energy matrix as we are," Lula said on Tuesday. "The so-called carbon credits they invented -- so far, we haven't seen a cent of that."

And more good news for tropical countries could come after 2012, when the prospect looms of expanding CDM to allow rich nations to pay poor countries to protect their rainforests.

"Providing incentives to maintain forests, to keep forests... has great potential," said Thorgeirsson.

"Deforestation contributes to 20 percent of global greenhouse gas emissions. That's where I see things moving. You'd have to look at an entire country, otherwise deforestation would just move to another area."