Sectoral Approaches, Trade and Competitiveness Peter Wooders Senior Economist, Climate Change, Energy & Trade

Focus: Trade & Competitiveness, Cement Sector Open Questions What options are under serious consideration? How would Sectoral Approaches impact Trade & Competitiveness? Are there other Benefits? What is needed for their implementation? Focus: Trade & Competitiveness, Cement Sector

Options under serious consideration If International Agreement Worldwide sector acting as a single entity - with full cap & trade within it - EXCLUDED Sectoral Crediting Mechanism [SCM] sector in a developing country would generate credits for sale if it emitted less than its target form of extended CDM “no lose” condition would mean no non-compliance penalty Sectoral Cooperation – Technology; PAMs e.g. Asia-Pacific Partnership (APP) Programme

Impact on Competitiveness Carbon cost Transport cost to Annex I market Production Cost ($ / tonne) Profit Investment Variable cost Annex I Non-Annex I Sectoral Approaches don’t reduce Carbon Cost Difference

Import Value with Carbon Cost Impact on Trade Import Value with Carbon Cost Trade with Carbon cost Price ($ / tonne) Export Price Import Value Trade Trade (tonnes) Key Drivers: Transport Cost, Carbon Price, Price Fragmentation

Other Benefits of Sectoral Approaches Allows countries to progressively engage Concentrate on key, measurable sectors Develop data, understanding, capacity May be more appropriate than Cap & Trade Links into Technology & Financing debates Better technology gives a range of benefits Production cost reduction Higher energy security of supply Local Air Quality improvements

Implementation Needs Enough political support to drive negotiations Including time in the UNFCCC agenda Detailed scheme to negotiate on Proposed by Industry and/or Government(s) Access to Market for any Credits generated Always (contentious) issues re: boundaries Cement or clinker (semi-finished) production? Include indirect emissions? Data and Benchmarking are onerous

Current Status - Cement Led by Cement Sustainability Initiative 18 companies, 30% of world production CSI has been active since 1999 Exploration of Sustainability Issues “Getting the Numbers Right” database 700 plants – 30% of world production New CDM Methodology Currently undertaking a major modeling study Results driven by Blending, AFR, Transport Costs

Conclusions Few options under serious consideration Sectoral Crediting Mechanisms Sectoral Cooperation – Technology; PAMs Limited impact on Trade & Competitiveness Benefits: flexible engagement; reduced fuel use Major Implementation Requirements Political Support Detailed Scheme Design Data