What is viable, efficient and effective? Industry views on sectoral approaches Jonathon Hanks Incite Sustainability Climate Change & Industry - UNEP Dialogue

What is viable, efficient and effective? Industry views on sectoral approaches “It is fair to say that there has been a lack of clarity in understanding what is meant by sectoral approaches and how they might be undertaken.” Bjorn Stigson - WBCSD

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Sectoral approaches - What are the options? Transnational sector-based initiatives (focus on the industry sector)  Voluntary industry-to-industry initiatives (e.g. Cement Sustainability Initiative) –Setting quantitative reduction targets or focusing on technology transfer  Public/private partnerships (e.g. Asia Pacific Partnership) –Setting quantitative reduction targets or focusing on technology transfer  Government commitments on transnational sectors –Agree targets, or a policy focus (eg on BAT) - Annex-1 and/or non-Annex 1 countries National government sector-based initiatives (focus on national government)  Country-specific quantitative approach with scope for sectoral (no-lose) credits  Policy-based approach (SD-PAM): recognition and support for policy commitments  Sectoral approach to CDM: broaden from project to sectoral CDM NB: No one size fits all; but SAs are ideally part of an overall structured franework

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Politically viable  Annex 1 countries: managing competitiveness issues for key sectors  High emitting emerging economies: common but differentiated responsibilities; sustainable development and energy security;  Most vulnerable developing countries: feeling the heat  Business community: competitiveness / efficiency Technically viable  Access to good baseline data on energy emissions and current technology  Access to technology Institutionally viable  Capacity constraints in developing countries in implementing sectoral approaches  Capacity constraints of the UNFCCC national negotiators on sectoral aspects

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Economically efficient  Recognise that the sectoral approach is the “second best option” over the current comprehensive approach - latter allows emissions reductions to occur where they are cheapest, and discourages leakage from regulated to unregulated sectors  But value in: –Encouraging developing country participation who not accepting national targets –Address competitiveness concerns within sectors under existing regional –Can facilitate technology diffusion and target high impact sectors  Economic considerations –Minimise adjustment costs associated with reducing emissions –Avoiding capital lock-in

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Environmentally effective  Results in meaningful absolute greenhouse gas reductions  Encourages technology diffusion and improvement  Builds capacity  Avoids investments lock-in  Does not inhibit disruptive innovation by relieving pressure on an existing emissions-intensive product / process

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Sectoral approaches - Which sector? Possible criteria for identifying sectors  Environmental aspects –Contribution to global GHG emissions - and rate of increase –Potential for emissions reductions –Ability to attribute, monitor and administer GHG emissions  Easing negotiation (feasibility) –Highly traded internationally (address competitiveness issues) –High concentration of actors in a sector (and few countries) –Greater homogeneity of products and processes –Receptivity of industry sector –economic factors and “intangibles” (e.g. culture)  Economic factors –Adjustment costs associated with reducing emissions –Avoiding capital lock-in

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Sectoral approaches - Which sector? Possible criteria for identifying sectors  Environmental aspects Alum Steel Cement –Contribution to global GHG emissions - and rate of increase    –Potential for emissions reductions    –Ability to attribute, monitor and administer GHG emissions     Easing negotiation (feasibility) –Highly traded internationally (address competitiveness issues)    –High concentration of actors in a sector (and few countries)   - –Greater homogeneity of products and processes    –Receptivity of industry sector    –economic factors and “intangibles” (e.g. culture)  Economic factors –Adjustment costs associated with reducing emissions –Avoiding capital lock-in

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches And which country? Where to focus the efforts? (Table from Centre for Clean Air Policy - Future Action Dialogue)

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Industry views - industry statements “Building on its existing track record, the Cement Sustainability Initiative (CSI) calls on G8 members and UNFCCC to accelerate the creation of the necessary policy framework for effective sectoral approaches” Cement Sustainability Initiative “While discussions are under way to reach a global climate agreement, complementary sectoral approaches should be put into place under which key industry players could work together to accelerate CO 2 reductions.” Bjorn Stigson - WBCSD “… the ICC believes that policy approaches should encourage voluntary sector- based approaches where environmental and/or economic benefits can be demonstrated.” ICC Discussion Paper on Sectoral Approaches

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Aluminium sector Conducive to sectoral approach -0.8% of global GHG emissions - 12 countries 82% of global production -200 plants; two standard technologies worldwide - over a third in China -Suggested best suited to industry-to-industry transnational initiative International Aluminium Institute (IAI) - Aluminium for Future Generations -80% reduction in PFCs per tonne of production by 2010 (on 1990 levels); 10% reduction in smelting and alumina refining energy per tonne by 2010; and promotes recycling and aluminium applications such as lightweighting of vehicles -Procedural elements: common measurement and emissions calculations methodology; benchmarking and annual data collection and sharing of best practice -Discussions on the potential for a no lose crediting agreement linked to CDM crediting non-annex countries for direct emissions beyond BAU, using IAI benchmarks to to develop baselines

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Steel sector Conducive to sectoral approach -3.2% of GHG emissions - global demand growing at 3-5% per annum -90% of steel-making emissions produced in nine countries World Steel Association producers, 85% of world steel -Task Force launched to develop a sector-specific approach with focus on -Working with customers to promote more CO 2 efficient applications of steel -Promoting best practice by technology transfer - exchange and transparency -Engaging in major research and development on breakthrough technology -Measuring and benchmarking CO 2 intensity of plants with a common methodology

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Steel sector World Steel Association identifies following challenges with sectoral approaches:  past experience in the industry shows that they “have tried and failed to reach such global agreements on matters such as trade or subsidies”  principle of “common but differentiated responsibility” makes a single agreement for the steel industry unrealistic  there should be parallel agreements between steel companies, national steel associations and their respective national or regional governments which set out commitments on improvements on CO 2 intensity for the future  by doing so there will be a strong case for governments to ensure own policies do not prejudice this common effort or distort the international market for steel

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Cement sector Conducive to sectoral approach -4% global GHG - expected to double in next 40 years, mainly developing countries -Fairly low concentration - 16 largest companies account for 25% of global output WBCSD Cement Sustainability Initiative (CSI) -Key CSI initiatives -Common measurement and reporting protocol; and emissions database -Independent assurance of CO2 emissions data -Capacity building on tools especially in India and China -Proposed elements of a sectoral approach -Proposing possible country or regional baselines, negotiated with governments to form the basis of intensity-based objectives and crediting system, with emerging economy governments aiming for “no lose” targets -Modelling exercise to demonstrate potential of sectoral approach

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Cement sector The CSI has identified following challenges in finalising its sectoral approach:  ensuring participation of major developing economies  assigning responsibility for setting/updating benchmarks and stretch/motivating targets  moving from reducing emission intensity to reducing absolute emissions  engaging trade associations  addressing crediting mechanisms that may hinder a level playing field by subsidising competitors  integrating sectoral approach with existing and developing national and regional regimes

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Asia Pacific Partnership on Clean Development and Climate Key features  Seven countries - Australia, Canada, India, Japan, the People's Republic of China, South Korea, and the United States  Voluntary, bottom-up framework for cooperation to facilitate the development, diffusion, deployment and transfer of technologies and practices  Provide a forum for exploring the Partners’ respective policy approaches  Eight public-private Task Forces to develop and implement Action Plans –Five energy-intensive sectors – aluminium, buildings and appliances, cement, coal mining, and steel – and three energy supply sectors – cleaner fossil energy, renewable energy and distributed generation, and power generation and transmission  Action plans address e.g.: sectoral assessments, data gathering and benchmarking, capacity building, and identifying best practices and technology research and demonstration

Climate Change & Industry - UNEP Dialogue What is viable, efficient and effective? Industry views on sectoral approaches Other sectors Electricity generation  25% of GHG emissions - significant growth forecast  On the one hand unlikely candidate: low levels of international trade, high national sensitivity, and variations in fuel mix and technology  On other hand: high contribution, well quantified and growing rapidly, potential for capital lock-in, need for major technology cooperation (e.g. on CSS) Transport  Aviation - 3.5% GHG (with radiative forcing) - expected to grow  Automobile manufacturing - 10% GHG, est. growth of 50% by 2020 / high uniformity in the sector, but very competitive and often nationally protected  Maritime - 1.4% of global emissions

Climate Change & Industry - UNEP Dialogue A proposed way forward (The CEPS Task Force Report) Partner with government in developing pilot projects to -Test the feasibility and usefulness of a common benchmark, or a common methodology to establish meaningful country-specific sectoral objectives -Assess the nature of countries’ institutional needs for implementing sectoral approaches, and review the impact on these institutional needs if GHG crediting is involved -Identify the preferred approach for international cooperation Partner with developed countries to support developing country governments and companies to measure and report on a sectoral basis Focus on developing practical performance benchmarks that are acceptable in sectors across developing and developed countries Sector associations should work on developing a common framework for sectoral approaches that develops basic monitoring, reporting and verification requirements building on some of the current activities outlined earlier Industry should identify goals for COP15 and beyond, and provide clear guidance on what they are seeking in terms of preferred models, nature of targets, relationship with carbon market and process of developing agreements

Climate Change & Industry - UNEP Dialogue Questions and Challenges “Unless unless global sectoral industry approaches can provide satisfying answers to the question of how they could fit into a post-2012 regime, they might be ignored… industry will need to show immediate progress towards developing global sector industry approaches” CEPS Where to prioritise efforts to inform the development of the framework? -Which sectors / countries should we focus on and what kind of approach? -What’s the best model for integrating these into the post-2012 framework? -What will be the most effective governance structure? -How do we coordinate efforts within sectors and countries? What incentive to get developing country governments and companies engaged? How to address technical concerns regarding defining and collecting data? How to address competitive concerns between developed and developing countries?

“The structure of some industrial sectors is so highly concentrated that just a handful of companies are responsible for producing a significant share of that sector’s total greenhouse gases emissions worldwide. These sectors are thus a ‘natural’ focus of policy-makers concerned with climate change... So-called ‘sectoral approaches’ are seen as having the potential to broaden the range of contributions by all parties, including emerging economies, to greenhouse gas emissions reductions, and to help moderate competitiveness concerns in trade-exposed industries.” The Centre for European Policy Studies (2008)