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Sectoral Approaches and the Carbon Market

Author

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  • Richard Baron

    (International Energy Agency)

  • Barbara Buchner

    (International Energy Agency)

  • Jane Ellis

    (OECD)

Abstract

Sectoral approaches are proposed as a means to broaden the global scope of greenhouse gas (GHG) mitigation to developing countries. Market mechanisms are put forward in that context to create incentives for mitigation in developing countries beyond the existing Clean Development Mechanism (CDM), and to encourage mitigation at least possible cost. The introduction of new, sector-based, market mechanisms is only one of many proposals discussed by UNFCCC Parties in the context of a post-2012 international climate policy framework, as a possible means to support mitigation actions in developing countries. This paper considers the carbon market aspects of sectoral approaches to reduce greenhouse gas (GHG) emissions in developing countries. It discusses three general ways to link sectoral goals with the carbon market: (i) intensity goals, based on a GHG performance per unit of output; (ii) fixed emission goals, with an ex-post issuance of credits or trading with an ex-ante allocation of allowances; and (iii) technology-based sectoral objectives. This paper explores the domestic policy implications of moving from a single project approach (i.e., CDM), to a multi-plant, sector-wide carbon market mechanism implied by sectoral crediting and trading. It also touches on possible transition issues, especially from intensity-based emission goals to fixed ones. The paper concludes that sector-based market mechanisms, regardless of the design option chosen, will require some significant upfront effort both nationally and internationally to set appropriate baselines and ensure adequate measurement, reporting and verification in order to generate economically valuable and environmentally-credible credits. Technology diffusion goals may be supported by other means than the carbon market if developing GHG baselines for such activities were too difficult. Sectoral approaches also imply some significant policy effort in countries that adhere to them, to ensure that the baselines are exceeded so that carbon market revenues are generated, and that these revenues represent effective incentives for entities to pursue GHG mitigation, wherever it is most cost-effective to do so. Des approches sectorielles sont proposées afin d'élargir les possibilités d'atténuation des gaz à effet de serre (GES) à l'échelle mondiale en y associant les pays en développement. Les mécanismes du marché sont mis en avant, dans cette optique, pour créer d'autres incitations à l'atténuation dans les pays en développement, en plus de celles du mécanisme pour un développement propre (MDP) existant ; il est suggéré aussi d'encourager l'atténuation au moindre coût possible. L'adoption de nouveaux mécanismes du marché de portée sectorielle n'est qu'une proposition parmi beaucoup d'autres que les Parties à la CCNUCC ont examinées en prévision du cadre international dans lequel s'inscrira la politique climatique après 2012 : leur mise en oeuvre pourrait faciliter les actions d'atténuation dans les pays en développement. Ce document aborde les aspects qui se rapportent au marché du carbone dans les approches sectorielles visant à réduire les émissions de gaz à effet de serre (GES) dans les pays en développement. Il analyse trois moyens de relier, de façon générale, les objectifs sectoriels et le marché du carbone : (i) des objectifs d'intensité, fondés sur le bilan de GES par unité de production ; (ii) des objectifs d'émission fixes, assortis de la délivrance ex post de crédits ou de l'échange de quotas alloués ex ante ; et (iii) des objectifs sectoriels en fonction des technologies. Ce document étudie les conséquences, pour les politiques nationales, du passage d'une approche axée sur des projets pris isolément (par exemple, dans le cadre du MDP) à un marché du carbone incluant de nombreuses installations et dont le périmètre est déterminé par l'attribution de crédits et la réalisation d'échanges au niveau sectoriel. Sont examinés aussi les problèmes de transition qui pourraient surgir, en particulier si des objectifs d'émission fixes remplacent les objectifs basés sur l'intensité. Ce document conclut que la mise en place de mécanismes de marché sectoriels nécessitera, quel que soit l'agencement choisi, certains travaux importants au départ, à l'échelon national aussi bien qu'international, pour définir les niveaux de référence appropriés et veiller à l'adéquation des procédures de mesure, de notification et de vérification, en vue de générer des crédits économiquement avantageux et crédibles sur le plan environnemental. Si la mise au point des niveaux de référence des GES pour les activités du marché du carbone pose trop de difficultés, d'autres moyens peuvent favoriser la réalisation des objectifs de diffusion des technologies. Par ailleurs, les autorités des pays qui adhèreront aux approches sectorielles devront s'assurer, par un important effort, que les niveaux de référence pourront être dépassés, afin que le marché du carbone dégage des recettes qui représentent de réelles incitations à l'atténuation des GES, chaque fois que ce sera la solution la plus efficace par rapport aux coûts.

Suggested Citation

  • Richard Baron & Barbara Buchner & Jane Ellis, 2009. "Sectoral Approaches and the Carbon Market," OECD/IEA Climate Change Expert Group Papers 2009/3, OECD Publishing.
  • Handle: RePEc:oec:envaab:2009/3-en
    DOI: 10.1787/5k4559g5snzq-en
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    Cited by:

    1. Jun Li, 2011. "Supporting greenhouse gas mitigation in developing cities: a synthesis of financial instruments," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 16(6), pages 677-698, August.
    2. Rob Dellink & Gregory Briner & Christa Clapp, 2011. "The Copenhagen Accord/Cancún Agreements Emission Pledges For 2020: Exploring Economic And Environmental Impacts," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 53-78.
    3. Peter Cramton & Steven Stoft, 2010. "International Climate Games: From Caps to Cooperation," Papers of Peter Cramton 10icg, University of Maryland, Department of Economics - Peter Cramton, revised 2010.
    4. Heindl, Peter & Voigt, Sebastian, 2011. "A practical approach to offset permits in post Kyoto climate policy," ZEW Discussion Papers 11-043, ZEW - Leibniz Centre for European Economic Research.
    5. Gregory Cook & Jean-Pierre Ponssard, 2011. "A proposal for the renewal of sectoral approaches building on the Cement Sustainability Initiative," Climate Policy, Taylor & Francis Journals, vol. 11(5), pages 1246-1256, September.
    6. Peterson, Everett B. & Schleich, Joachim & Duscha, Vicki, 2012. "Sectoral Targets as a Means to Reduce Global Carbon Emissions," Conference papers 332200, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Vicki Duscha & Everett B. Peterson & Joachim Schleich & Katja Schumacher, 2019. "Sectoral Targets To Address Competitiveness — A Cge Analysis With Focus On The Global Steel Sector," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-27, February.
    8. Miola, A. & Marra, M. & Ciuffo, B., 2011. "Designing a climate change policy for the international maritime transport sector: Market-based measures and technological options for global and regional policy actions," Energy Policy, Elsevier, vol. 39(9), pages 5490-5498, September.
    9. Jun Li & Michel Colombier, 2011. "Economic instruments for mitigating carbon emissions: scaling up carbon finance in China’s buildings sector," Climatic Change, Springer, vol. 107(3), pages 567-591, August.
    10. Millard-Ball, Adam, 2013. "The trouble with voluntary emissions trading: Uncertainty and adverse selection in sectoral crediting programs☆☆Special thanks to Suzi Kerr, Lawrence Goulder, Michael Wara, Arthur van Benthem, Lee Sch," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 40-55.
    11. Peter Heindl & Sebastian Voigt, 2012. "Supply and demand structure for international offset permits under the Copenhagen Pledges," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 12(4), pages 343-360, November.
    12. Yadira Mori-Clement & Stefan Nabernegg & Birgit Bednar-Friedl, 2018. "Can preferential trade agreements enhance renewable electricity generation in emerging economies? A model-based policy analysis for Brazil and the European Union," Graz Economics Papers 2018-19, University of Graz, Department of Economics.
    13. de Sépibus, Joëlle, 2009. "Reforming the Clean Development Mechanism to Accelerate Technology Transfer," Papers 7, World Trade Institute.
    14. Gavard, Claire & Winchester, Niven & Paltsev, Sergey, 2016. "Limited trading of emissions permits as a climate cooperation mechanism? US–China and EU–China examples," Energy Economics, Elsevier, vol. 58(C), pages 95-104.
    15. Guy Meunier & Jean-Pierre Ponssard, 2012. "A Sectoral Approach Balancing Global Efficiency and Equity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(4), pages 533-552, December.
    16. Axel Michaelowa, 2010. "The Future of the Clean Development Mechanism," Chapters, in: Emilio Cerdá Tena & Xavier Labandeira (ed.), Climate Change Policies, chapter 10, Edward Elgar Publishing.
    17. Cai, Wenjia & Wang, Can & Chen, Jining & Wang, Siqiang, 2012. "Sectoral crediting mechanism: How far China has to go," Energy Policy, Elsevier, vol. 48(C), pages 770-778.
    18. FUJIWARA Noriko & GEORGIEV Anton & ALESSI Monica, 2010. "The merit of sectoral approaches in transitioning towards a global carbon market," ESRI Discussion paper series 235, Economic and Social Research Institute (ESRI).

    More about this item

    Keywords

    approche sectorielle; atténuation; carbon market; changement climatique; climate change; gaz à effet de serre; greenhouse gas; marchés du carbone; mitigation; sectoral approach;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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