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                                                                          20 August 2008




The latest science indicates that absolute global emissions must begin to decline in the
next decade to keep open the option of avoiding dangerous climate change. Given this
scientific reality, economy-wide caps and absolute emissions reductions across sectors in
major emitting countries are essential to ensuring the transition to low-carbon economic
growth. While sectoral approaches could, in principle, help as a transitional tool to build
capacity in developing countries, any proposals for sectoral approaches in a new global
framework should be evaluated against the following tests:

   1. Are the emissions reductions sufficiently broad in scope and ambitious in depth to
      enable the world to keep open options for preventing a 2ºC increase in global
      average temperature?
   2. Does the framework welcome the participation of all major emitters, while
      recognizing differences in national circumstances, without yielding to pressures
      from some industrial sectors that seek to escape absolute emissions caps?
   3. Does the framework avoid such pitfalls as intensity targets, technology
      performance standards, inter-sectoral leakage, and unenforceability, any of which
      could foreclose options for limiting warming to 2ºC by failing to ensure absolute
      emission reductions?

Some Weaknesses of Proposed Sectoral Approaches

   ·   Intensity (or "specific") targets, i.e., limits on emissions per unit of economic
       output, are unlikely to prevent a 2ºC increase because they do not guarantee
       absolute, total, emission reductions. They also send the wrong market signals,
       allowing countries to increase absolute emissions as long as energy efficiency
       improves. Further, intensity targets cannot be traded in carbon markets without
       destroying the integrity of a global cap and trade system. This means an intensity
       target approach cannot harness the power of markets to drive innovation, reduce
       emissions, or reduce compliance costs.

   ·   Sector-specific technology performance standards are also unlikely to prevent a
       2ºC increase because they also do not guarantee absolute reductions. Further,
       such standards could force governments to pick technology winners and losers
       rather than make technologies compete in the market. They can also advantage
       current players and disadvantage newcomers and entrench existing technologies,
       hampering the development of entirely new sectors, technologies, and products
       based on renewable and zero-carbon energy.
   ·   Sectoral approaches could increase compliance costs. Companies within industries
       tend to face similar abatement costs. Trading across sectors broadens the scope of
       abatement and compliance opportunities and lowers costs for capped sectors. On
       the other hand, restricting trading to within sectors decreases compliance
       flexibility and drives up costs.

   ·   If sectoral approaches become an end result instead of a short-term transition,
       they could discourage countries from adopting nation-wide cap and trade systems.

   ·   Sectoral approaches are vulnerable to inter-sectoral leakage between capped and
       uncapped sectors. A country could cap some sectors while inadvertently shifting
       emissions to other sectors, leading to no absolute global benefit to the
       atmosphere.

   ·   Industry commitments alone would be unenforceable. From a legal perspective,
       industrial sectors do not have the capacity to make treaties. A sectoral approach
       would need to be agreed upon by national governments.

Guiding Principles for Sectoral Approaches

Sectoral caps should not replace national caps for industrialized countries. For developing
countries:

   ·   Sectoral approaches should be designed with a clear end date, as a short-term
       building block towards reducing emission trajectories, ideally through an
       economy-wide cap and trade system. They should be implemented with clear
       incentives to build capacity to monitor and verify absolute emission reductions
       and enable major emitting economies to adopt and implement absolute emissions
       reductions by 2020, at the latest.

   ·   Sectoral approaches should not use intensity or specific targets or technology
       performance standards. Instead, if used, an approach should encourage steep
       absolute reductions from business as usual (BaU). Further, they should not be
       used merely to address competitiveness concerns of certain industrial sectors.

   ·   Sectoral caps should cover sectors that together represent a majority of a country's
       emissions, are not likely to "leak" to uncapped sectors, and enable developing
       countries to more rapidly transition to low-carbon economic growth consistent
       with their national interests.

   ·   Sectoral caps should be legally binding, tightly monitored and enforced, lead to
       real, measurable, and verifiable absolute emission reductions, and be supported by
       rigorous penalties for non-compliance.


           Please visit www.edf.org/AccraClimateTalks for more information.