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03 Dec 2010 02:12:26

Is a sector carbon deal the best choice?

The sectors with largest carbon emissions should jointly agree on a global sectoral system that integrates carbon and trade.
The Cancun Summit will be a one more step on the road to establishing a workable framework for reducing global carbon emissions. But, a global climate deal focused on economy-wide carbon emissions targets seems to be insufficient.
Following last month’s midterm elections, it’s quite certain that the US will be unable to subscribe to any legally binding commitment at the UN negotiations over the next couple of years. But, also public and sovereign debt will inhibit Europe's leadership, and Japan will be hard-headed in replacing the existing Kyoto framework with one that encompasses all major carbon emitters. While, emerging markets will be keen to perpetuate the current regulatory structure while avoiding any measures that inhibit their ability to grow or that result in foreign accountability of their carbon emissions performance.
However, a patchwork of carbon regulations will continue to develop in the absence of a global climate agreement. The two largest examples are the EU's Emissions Trading Scheme (ETS), and the Western Climate Initiative's cap-and trade scheme for seven western U.S. states that is due to start in 2012. Other carbon controls are in the pipeline in countries such as Japan, South Korea, China, Mexico and Australia.
Conscious of the dilemma, the Mexican government has worked to escalate the role of businesses in the policy-making process. What can we expect from business at COP16 and beyond? It's time that policymakers gave a more prominent role to businesses by formalizing and institutionalizing their participation in climate policy negotiations.
Steel and cement industries alone account for some 15% of global emissions
Just five industrial sectors account for 20% of global carbon emissions and these sectors are concentrated in a small number of countries. Steel and cement industries alone account for some 15% of global emissions, and they could reduce their carbon emissions by 35% from 2000 levels by 2030 by using technology available today. Those reductions would be equivalent to the entire annual carbon emissions of the Japanese economy.
This does not necessarily mean that sector carbon deals are an alternative to a global climate deal in Cancun. A binding and ambitious global climate deal is of course the optimal outcome. The question is how to allow these sectors to agree to carbon emissions reductions globally without putting their particular countries at a competitive disadvantage. This should not be about imposing rules on others, but rather about jointly agreeing on a global sectoral system that integrates carbon and trade.
Innovative systems that combine performance incentives (such as Japan's Top Runner program) with border adjustment measures could be an effective first step. Using carbon emissions performance-based benchmarks, free allowances or rebates could be used for exporters, and combined with border adjustments such as tariffs, taxes or allowance purchase requirements for imports. Technology diffusion and funding for R&D in breakthrough technologies should also play a role.
The key principle is that if we were to go down the route of sector-based policies, trade and carbon issues could be brought together. They are, of course, only one of the ways to deal with the implications from multiple and disconnected carbon policies. But, given the unlikely outcome of any global deal, now is the time for the private sector to step forward and take the initiative.

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