Organisation for Economic Co-operation and Development International Energy Agency Sectoral Crediting Mechanisms for Greenhouse Gas Mitigation: Institutional and Operational Issues

The ideas expressed in this paper are those of the author and do not necessarily represent the views of the OECD, the IEA, or their member countries, or the endorsement of any approach described herein. Expert Group oversees development of analytical papers for the purpose of providing useful and timely input to the climate change negotiations. These papers may also be useful to national policy-makers and other decision-makers. In a collaborative effort, authors work with the Annex I Expert Group to develop these papers. However, the papers do not necessarily represent the views of the OECD or the IEA, nor are they intended to prejudge the views of countries participating in the Annex I Expert Group. Rather, they are Secretariat information papers intended to inform Member countries, as well as the UNFCCC audience. United States of America. Korea and Mexico, as OECD member countries, also participate in the Annex I Expert Group. Where this document refers to " countries " or " governments " , it is also intended to include " regional economic organisations " , if appropriate. International climate policy makers face two issues: how to accelerate the deployment of technologies that advance sustainable development in developing countries and how to make the process of developing emission reduction credits under the Clean Development Mechanism (CDM) more economically efficient and environmentally effective. Previous AIXG papers (Bosi and Ellis, 2005 and Ellis and Baron, 2005) have explored issues relating to broadening the project-based approach of the CDM to a sectoral crediting mechanism (SCM) beyond 2012. This paper builds on those efforts and focuses on sector-wide baselines, design and institutional issues, and questions relating to governance. It then analyses and compares various designs in terms of environmental effectiveness, economic efficiency, administrative cost/feasibility, and competitiveness concerns. The paper concludes that while it is possible to design a sectoral crediting mechanism to complement the flexible mechanisms contained in the Kyoto Protocol, a number of challenges would need to be addressed in a system seeking to move crediting to a sector-wide basis:-The development of sector-wide baselines could prove very difficult as there is little homogeneity in sectors. Within a sector, wide variations in greenhouse gas intensities and among facilities may mean that differentiation, and thus multiple baselines, are needed. This is not necessarily conducive to a least-cost mitigation outcome overall. Further, it may be very burdensome to negotiate. Existing policies that apply to sectors …