Explanation of the difference between a sectoral agreement and a sectoral approach in the framework of the international negotiations on an International Post-Kyoto Agreement.
A sectoral agreement is signed by governments and is legally binding by international law. It can serve as an element of an International Agreement providing special provisions for defined groups, or as an intermediary step or precursor to an International Agreement. However, a comprehensive International Agreement on Climate Change is the most suitable instrument to prevent leakage and to provide for equal treatment.
For any Sectoral agreement that may be envisaged the main objective must be the suppression of distortion of competition and the removal of leakage risk. Any sectoral agreement must be part of an International Agreement that includes all other ETS sectors.
The concept of common but differentiated responsibilities can be applied to countries but not to globally tradable goods. Tradable goods must be subject to the same discipline, because otherwise trade flows will adjust according to least cost opportunities and no CO2 reduction effect be obtained. Any sectoral agreement must therefore comply with certain stringent criteria to provide against leakage:
The above criteria are, inter alia, implied by Art. 10a18 ETS directive, requiring (for the determination of carbon leakage sectors) to take account of the extent to which third countries, representing a decisive share of global production of products in sectors or subsectors deemed to be at risk of carbon leakage, firmly commit to rescuing greenhouse gas emissions in the relevant sectors or subsectors to an extent comparable to that of the Community and within the same time-frame.
To integrate different existing political approaches, baselines will be the best choice for quantitative targets. Targets, which adequately cover direct, indirect and upstream emissions - quantified by a globally harmonised CO2 assessment methodology which provides for full comparability - offer the best option to connect both to the direct CO2-system of the EU and the energy based approach of Japan and Korea and China.
Finally, any sectoral agreement must be accompanied with an evaluation on its impacts on leakage risk and equal competition. A respective mandate should be part of framework stipulations for sectoral agreements which should be part of the Post-Kyoto International Agreement.
If a comprehensive solution is not achievable the EU must upkeep and if needed expand measures against leakage risk. The main instrument must be free allocation based on performance. Complementary only, WTO compatible forms of border measures should be investigated and developed to be available as one possible form of additional measures.
Clearly distinct from a sectoral agreement is a sectoral approach, which is an instrument to increase voluntary engagement of companies of a sector around the globe. It is a dynamic process starting with very loose arrangements and patchy participation converging over time towards ever increased coverage and common rules and targets.
A sectoral approach is therefore not a suitable blueprint for a sectoral agreement because it lacks by its nature (it is a process, not a signed, binding document) the possibility to introduce equal competition and provide against leakage risk on a global scale. A sectoral approach can inform national and international policies but it cannot substitute them. It can produce information, instruments and tools which may provide certain input into a sectoral or international agreement.
However, simple copy-pasting is not possible. The instruments and tools developed under a sectoral approach must be modified and fine-tuned for their application under a sectoral or international agreement. Examples are GHG quantification, technology roadmaps or know-how exchange platforms.
To clarify its role, potentials and limitations communication on a sectoral approach must contain a clarification on
Parties to an International Agreement should provide financial, administrative, legal and logistical support for activities made in the framework of a sectoral approach.