Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development

Chapter 7 Why a Successful Climate Change Agreement Needs Sectoral Elements

Climate Finance 79 Chapter 7 Why a Successful Climate Change Agreement Needs Sectoral Elements Murray Ward Principal, Global Climate Change Consultancy; Former Senior Climate Change Negotiator, New Zealand Government Key Points • Sectoral elements such as sectoral no-lose targets (SNLTs) and other kinds of sectoral agreements are an essential next step to climate change mitigation in developing countries, and can benefit both developing and developed nations. • SNLTs can benefit developing countries by enhancing the scale of incentives for private-sector investment, motivating sector-wide emissions achievements, and providing linkages to global carbon markets . SNLTs are in effect a type of sectoral NAMA crediting. SNLTs work best for emissions-intensive sectors with a few major sources, e.g., electricity generation, cement, iron and steel, aluminum, oil and gas production, and refining. They typically set emissions-intensity requirements. • For sectors where SNLTs will not work, other kinds of sectoral agreements can address use of low-carbon technology, technology diffusion, etc. Sectoral Approaches—New and Necessary Sectoral elements are a necessary part of any international climate mitigation agreement that seriously engages developing countries. Although there is great variety among sectoral proposals, they all seek to encourage 80 Murray Ward mitigation across a sector of the economy, rather than just on a project-byproject basis. There have been some early missteps along the way regarding what is meant by a sectoral approach, and it is notable that proposals for sectoral elements initially came mainly from developed countries. This has raised suspicions and clouded inclusion of sectoral elements in the global regime for the post-2012 period. But the case for them is strong. Sectoral—How? The question is how sectoral elements for mitigating emissions in developing countries might play a role in a global climate change agreement. In practice, it may be seen that the delivery of current mechanisms and programs happens in sectors. In the Clean Development Mechanism (CDM), it is clear that there is significant sector-level specialization. This is true for project developers, technology providers, and those providing both project finance and carbon finance. And in the non-UNFCCC world of the Asia Pacific Partnership and the Major Emitters Forum, most technology cooperation activities have been developed and delivered through sector-specific task groups. Of particular importance is how these existing mechanisms and programs may be enhanced to scale up mitigation activities in developing countries—and the technology and financing transfers and investment needed for this to happen. Can this be more effectively achieved by taking a sectoral approach? What are the inherent constraints and challenges that need to be addressed? Indeed, the very term “sectoral approach” has been part of the problem in getting these issues discussed in an objective, analytical, and suspicion-free manner. What does it mean—exactly? What Sectoral Approaches Are Not About First, one common suspicion has been that developed countries favor sectoral commitments as a means to avoid stringent binding economywide emission targets for themselves. But those developed countries that stress domestic sectoral circumstances have increasingly made clear that their objective is simply for these circumstances to gain some recognition as negotiations decide the differentiated level of their economy-wide circumstances. Thus, for example, Japan wants others to understand how efficient its economy is—so it has a high abatement cost curve—and New Why a Successful Climate Change Agreement Needs Sectoral Elements 81 Zealand wants others to understand that about 50% of its emissions come from the agriculture sector, where mitigation possibilities for such things as ruminant methane emissions from its livestock are quite limited. Second, sectoral approaches are not about trying to have industries in developing countries (and their governments) sign up to binding international sectoral agreements. Nor are they about negotiating performance benchmarks for industrial processes that may be the basis for possible border tax adjustments or, in developed countries, the basis for allocations of grandparented allowances in domestic emission trading schemes. For developed countries, then, a sectoral approach is not about their emissions (in the international agreement anyway); it is about mitigation in developing countries. The one exception to this is the special case of international marine and aviation bunker fuels. These emissions arguably should be managed by both developed and developing countries on a sectoral basis. There is an ongoing debate as to whether these should be managed by their respective existing multilateral intergovernmental processes (International Maritime Organization and International Civil Aviation Organization), or brought under a United...