Big emitters facing carbon limits
Sectoral industry agreements have received considerable attention for their potential to reduce greenhouse gas emissions. But developing countries remain wary.
As talks between the 160 nations party to the United Nations Framework Convention on Climate Change grind towards a finale in Copenhagen in December 2009, many heavy industries are keeping a close watch on what emission reduction schemes will emerge from the discussions.
Steel and aluminium producers, as well as the cement sector, are among the most fidgety, given the energy- and emissions-intensive nature of their businesses. In Europe, for example, these industries have banded together to call for exemptions to the European Union's ever-tightening emissions trading scheme, due to be relaunched in 2013. Paying too much for emissions permits, they say, will drive factories, jobs and emissions out of Europe, especially to countries with less-stringent carbon regimes.
One way to prevent this so-called “carbon leakage”, say industries in European and other developed countries, would be to allow companies to obtain emission reduction credits within sector-specific agreements.
Such agreements would be international in scope, and include incentive mechanisms such as clean technology transfers to get producers from developing countries on board. The level of credits allocated for specific emission reductions would be based on clean technology benchmarks.
An initiative that has claimed moderate success in reducing emissions is the Cement Sustainability Initiative, coordinated by the Geneva-based World Business Council on Sustainable Development. The 18 major cement producers that signed up to the initiative reduced carbon dioxide emissions during cement production on average by 100kg of CO 2 per tonne of production over the past eight years, says the WBCSD, though it remains unclear to what extent these emission reductions were a direct result of the CSI.
Claire Mathieu, from CSI member company Lafarge in Paris, says the initiative gave companies a framework for action and created an environment of peer pressure, where leading companies on emission reductions inspired others to follow suit.
While Mathieu admits that other factors beyond the CSI also influenced the decisions of firms to cut emissions, she remains convinced sectoral deals have value and potential. Nonetheless, to be truly effective in the long term, such initiatives “only make sense” if they are integrated into an international regulatory framework, she says.
Giving existing voluntary sectoral agreements the status of internationally and potentially legally binding mechanisms will be difficult, however, at least in the context of the UNFCCC talks that were launched in Bali in December 2007. “That is certainly not going to happen,” said one UN official at the most recent round of discussions during an August UNFCCC meeting in Ghana.
The summary of the Ghana meeting says: “It was generally agreed that these approaches and actions should not replace emission reduction targets of developed countries nor form the basis of proposals for sectoral mitigation commitments or international technology benchmarks.”
Most members of the G77, a grouping of developing states that includes China, India and Brazil, are wary of international sectoral deals. They fear that industries from developed states will be at a natural advantage in setting clean technology benchmarks, particularly since those benchmarks are likely to be established against the backdrop of tightening carbon markets in rich countries or rich country groupings such as the EU.
Rich countries would also have an easier time achieving their emission reductions potentials, thus putting developing states at a competitive disadvantage, the argument goes. “We feel extremely uncomfortable with the kind of sectoral approaches that are being discussed,” Indian delegate Ajay Mathur told Reuters after the Ghana meeting.
Developed countries that are in favour of sectoral deals, notably Japan, the US and Canada, are trying to give poorer states assurances that any agreements would be fair. Clean technology transfer mechanisms and respect of the hallowed UNFCCC principle of “common but differentiated responsibilities” in tackling climate change would be upheld, they say.
But these assurances do not appear to be hitting home. Japan caused fury among G77 delegates and “almost wrecked the talks” when it tabled a proposal for a far-reaching international sectoral agreement during a UNFCCC meeting in Bangkok in April, according to the UN official quoted in Ghana.
Japan is pushing for specific emission reductions targets to be established from the bottom up, or according to what industries are able to achieve in their given circumstances and economies, rather than being established top down from governments at national level or in an international deal.
Europe divided, as usual
EU leaders, on the other hand, agree that emission reductions targets should be set from the top down by governments and not by industry. “Sectoral contributions towards emissions reductions can be useful towards meeting [national or international] targets, but cannot replace them,” a spokesman for the European commission in Brussels says.
But views diverge sharply within the union on the extent to which sectoral deals can help slash emissions.
Any international climate change deal that includes the EU “must have some sort of sectoral approach”, says Volker Franz, who deals with the issue for BusinessEurope, a major industry lobby in Brussels. To be fair to European industries that face tougher carbon restrictions, such an approach should include absolute reduction targets for advanced developing countries like China, Franz says.
This argument infuriates some of Europe's green activists. “The real agenda of companies like ArcelorMittal and Lafarge is to get completely off the hook from EU climate change efforts,” says Claude Turmes, a Green and outspoken member of European parliament.
“This real agenda will be hidden behind some additional rhetoric — so-called benchmarking systems or global sector agreements,” Turmes says.
How these discussions play out and how industries will be treated under the EU's internal emissions reduction regime is likely to be closely watched by other states and industries. Brussels is hoping to finalise proposals for a revised emissions trading scheme before European parliament elections in March 2009, so that the EU can flaunt its climate credentials at the Copenhagen meeting at the end of next year.
An open game?
In the meantime, most observers agree that the question of whether and how sectoral agreements will be included in any international climate change deal is still very much open. Powerful developed states and their industries are unlikely to drop the idea altogether, despite the wariness and opposition of developing states.
One possibility for preventing an impasse on the issue, says the UN official, would be to transform or expand the Kyoto protocol's Clean Development Mechanism and Joint Implementation schemes, which allow rich country industries to obtain emissions offset credits in exchange for clean development projects in poorer countries.
The issue is being debated only occasionally by a UNFCCC working group on long-term climate solutions. Talks remain at an early stage. But the idea is potentially promising because developing states such as China have already obtained considerable clean technology transfers through the CDM and JI mechanisms, and because developing country industries are limited in how many emissions they are allowed to offset using the schemes.
With the Copenhagen summit still well over a year away, discussions remain at an early stage. A new US president in Washington next year will add greater urgency to global climate change talks, compared with the lack of interest shown by the Bush administration.
For now, one thing seems clear: given the interest in sectoral deals on the part of developed country governments and industries, and the resistance from developing states, enthusiasts of international talks on climate change can be assured of some good showdowns in the months to come.