Could sectoral agreements solve climate change?

This is part two of a three-part series that follows on from the release of the Intergovernmental Panel on Climate Change Fifth Assessment Report, looking at emerging alternatives to the UN climate agreement…

Getting an agreement on gas could set the tone for other industry emissions reduction agreements. stefo/Flickr

This is part two of a three-part series that follows on from the release of the Intergovernmental Panel on Climate Change Fifth Assessment Report, looking at emerging alternatives to the UN climate agreement process.

Since the climate change problem emerged as a major international issue in the late 1980s, a recurring policy question has been whether to address it comprehensively or industry sector by industry sector.

The United Nations and its Kyoto Protocol adopt a comprehensive, global approach. But neither agreement precludes sectoral approaches. Indeed, the Kyoto Protocol says emissions reductions from aviation and shipping should be agreed by those sectors.

Sectoral agreements and their advantages

Under a sectoral approach, “governments and/or companies agree on measures to limit or reduce emissions from key GHG-generating sectors such as … power … or other emissions-intensive industries”.

Agreement could be between companies, governments or both. Efforts could be differentiated. They could begin with a small number of parties and grow over time.

These kinds of agreements may be easier to make than international climate agreements, which involve a plethora of parties with multiple, often competing, objectives. They may also be more manageable than economy-wide approaches.

Sectoral agreements can involve countries that are not prepared to take on economy-wide targets. Countries can target sectors where urgent action is necessary, and can address concerns about competition.

Rather than trying to get international agreement on carbon pricing, sectoral agreements, according to economist Ross Garnaut, can “cause each government to subject the main producers in each industry producing emissions-intensive tradable goods to a carbon tax, until the country has an effective national emissions limit”.

Critics of sectoral agreements argue they undermine the UN climate change agreement’s principle of “common but differentiated responsibilities”. This requires developed states to take the lead in reducing emissions. They also say voluntary sectoral approaches offer no guarantee of actual emissions reductions.

The case for a sectoral agreement for gas

A Massachusetts Institute of Technology (MIT) study found there are “abundant supplies of natural gas in the world, and many of these supplies can be developed and produced at low cost”.

Natural gas plays a major role in most sectors of the economy (unlike other fossil fuels). In a carbon-constrained economy, “the relative importance of natural gas is likely to increase even further, as it is one of the most cost-effective means by which to maintain energy supplies while reducing CO2 emissions”.

A paper by ResourcesLaw International (RL) argues the main advantage of an LNG sectoral agreement is environmental effectiveness – that is, by displacing coal, gas use will reduce emissions.

ResourcesLaw also believes negotiations on an agreement could run smoothly. Only a small number of states need be involved to achieve wide coverage of the sector. An agreement would avoid trade distortion and reduce investment risk in exporting and importing states.

An LNG sectoral agreement would also give developing states the chance to participate in global emissions reduction efforts.

And the case against

There are many who disagree gas is the best way to transition away from coal; they would rather see a move straight to renewable energy.

Michael Levi from the Council on Foreign Relations argues that “[i]n the context of the most ambitious stailization objectives (450ppm CO2) … a natural gas bridge is of limited direct emissions-reducing value, since that bridge must be short.”

If you’re not careful, says climate scientist Richard Muller, “natural gas becomes a bridge from a coal-powered past to a coal-powered future. But it can unquestionably be helpful if the switch is accompanied by policies that promote energy efficiency and continued growth of renewables.”

Transition fuels are also an “investment dead-end”, creating a group of investors opposed to any move to clean energy. The International Energy Agency’s chief economist, Fatih Birol, emphasises that about two-thirds of oil gas and coal reserves must be left undeveloped if climate change is to be limited to 2C.

This is compounded by concerns about the gas extraction process - fracking - which can contaminate ground water and present other environmental and health threats.

Flogging dead horses

Professor of Economics Richard SJ Tol said at the Doha climate change talks that “[h]aving flogged, ever harder for 18 years, the dead horse of legally binding emission targets, the [United Nations Framework Convention on Climate Change] should close that chapter and try something new.”

If it didn’t, he warned, the world would move on from the UN convention and the Kyoto regime.

Sectoral agreements could be a way to coordinate climate and trade policies, or integrate them institutionally.

Such coordination or integration could in principle help develop sectoral agreements as part of any new climate change regime, says trade and development academic Thomas L Brewer.

If global industry-specific sectoral climate agreements gather momentum, it would seem inevitable, he says, that discussions “will involve international trade and investment issues; for international competitive concerns have become integral to the international dialogue about the future of the international climate regime”.

Part one of this series, looking at problems with the international climate change agreement process, is here.