A sectoral crediting mechanism to replace the CDM in competitive industrial sectors of advanced developing countries such as China and India could hit the wall due to lack of institutional capacity, a Brussels climate change conference warned.
Such a mechanism, generating credits once a sector has reached an agreed baseline for emission reductions, is fundamentally different from the CDM in that it deals with entire industrial sectors rather than individual installations, said Jürgen Lefevere, policy coordinator for international climate change negotiations at the Commission's environment directorate.
"This will also have implications for institutions," he said. "So you are looking at an institutional structure that needs to be able to respond to these fundamental changes."
The official pointed out that the new institutional arrangements would therefore have to take into account the role of governments and entities controlling the sector. He stressed that it would be crucial to get those new arrangements in place "fairly quickly".
However, institutional or capacity-building has not even started yet as governments are still far from agreeing the ins and outs of the new climate agreement.
"On the negotiating floor, the discussions on sectoral crediting remain difficult, but I think that's for political reasons. In bilateral discussions, we are seeing very positive reactions," Lefevere said.
But business is not entirely behind the concept, arguing that it might be worth looking into improving the CDM rather than going for an entirely new system.
"The market has a lot of defects […] but it does have a way of working around problems," argued Daniele Agostini of Italian energy utility Enel. He said that the problems with the mechanism could be significantly reduced simply by strengthening the rules.
Moreover, while sector-based mechanisms might work in some countries, they might not make sense in others, Agostini pointed out.
"One thing people often don't think about is market structure in those countries," he said. He pointed to the risk that the sectoral crediting mechanism wipes out all small players, opening the field to big multinationals.
Facilitating technology transfer?
The EU also hopes to use the sectoral mechanism as a means of facilitating technology transfer from industrialised countries to the developing world. It is one of the crucial aspects of a new climate deal but has so far stumbled on intellectual property protection (EurActiv 16/10/09).
But Nick Campbell, who chairs BusinessEurope's climate change working group, argued that the sectoral approach would give the financial community little incentive to deploy new technologies in developing countries.
The CDM has encouraged the financial community to take part in technology transfer by linking technology deployment and developing countries to the carbon market, Campbell said.
"One of the questions I keep asking about the sector crediting process is, 'Where is the incentive for the financial community to get involved in sector crediting when it looks to me to be very much a government-to-government process?'," he said.
The business leader warned that the debates in international negotiations focusing on technology transfer between governments are doing little to promote the ground-level deployment of technologies carried out by businesses on a day-to-day basis.
