Business Enthusiasm For Sectoral Approach

In Bali last year, the ICC and WBCSD, as representatives of global business at the climate talks, named their one-day side event “Tri Hita Karana”, a proverb taken from a Balinese philosophy which emphasizes that happiness can only be attained if the Creator, people and nature live in harmony with each other. This year, the organizers of the Poznan Business Day resisted the temptation to find an appropriate Polish proverb to characterize the spirit of the event.

The most notable policy development at the Poznan Business Day was the growing enthusiasm around sectoral approaches to mitigation, which according to one observer, dominated the workshop. In contrast to mitigation rules that apply to all companies within a particular jurisdiction, sector-based rules apply to all companies across jurisdictions and would therefore not have differentiated effects on trade-exposed industries based in different countries but operating in the same sector (such as aviation, transport, cement)

Not that a sectoral approach wouldn’t create winners and losers. Consider transport and cement, two of the largest-emitting sectors. The charts below illustrate how emissions in the transport sectors are currently highest in North America, meaning that a sectoral approach to mitigating transport emissions would disproportionately effect that region. However, future growth in other regions would even it out in the long-run.



In contrast, cement production (and associated emissions) is overwhelmingly concentrated in Asia, reflecting the demands of the Chinese construction boom.



Thus, while sectoral approaches may appeal to companies looking for uniform rules in the sectors in which they operate, the appeal to countries (who sit at the negotiating table) is still mixed. But nevertheless, as WRI identified in a report from last year, they do have their appeal; they could induce more countries to join a global climate deal, they address competitiveness concerns, and they focus policy-makers’ attention on key emission-intensive sectors. However, a multitude of sectoral approaches, rather than an overarching global deal, increases the administrative burden that countries face in monitoring and enforcing emission cuts.

What the debate illuminates is the problem of having national governments (with their national political interests in mind) negotiate a deal that works for companies and investors (with an increasingly global sectoral view). They key is for targets to be nationally-based, because only national governments are fully accountable to the public and have authority to regulate and enforce, and implementation to be tailored to the needs of transnational business to ensure cost-efficiency and the necessary investment volumes

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1 comment

  1. Dan

    As I understand sectoral approaches, you use a benchmark for emission intensity and allocate permits based on that (i.e. if you are a cement factory, you might get permits per unit of cement output). So the exposure of countries is not based on the volume of output, but the relative efficiency of their industry. I think that’s why some countries don’t like sector approaches: because they have inefficient industry, not lots of industry. One problem with sector approaches is that developing countries often have less efficient installations and the effect of the scheme can be regressive. Does all that sound right?

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