Special Report

No global deal for high-carbon industry

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Special Report: The COP 15 climate summit in Copenhagen

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There are strong arguments for global agreements to curb greenhouse gas emissions from energy-intensive sectors such as cement, steel, aluminium and agriculture. James Richens explains why the idea has so far come to nothing

Dujiangyan cement plant, China: © Dr Mediatheque, Lafarge
Dujiangyan cement plant, China: © Dr Mediatheque, Lafarge

The much-vaunted prospect of legally binding global agreements by industrial sectors to cut greenhouse gas emissions under a post-2012 climate change protocol has faded in the face of insurmountable practical and institutional barriers.

But the aluminium, cement and steel sectors – responsible for about a tenth of global greenhouse gas emissions – remain keen to show how voluntary initiatives can help bring developing countries on board global efforts to cut carbon emissions. Agriculture is mounting a late drive for greater recognition.

Eighteen months ago, business groups and policy thinktanks were enthusiastically discussing the possibility of a new approach to reducing global carbon emissions that focused on carbon-intensive industrial sectors rather than individual countries (ENDS Report 403, pp 32-35).

The Bali Action Plan, agreed in 2007 at the UN climate summit on the Indonesian island, set the terms of reference for negotiating a new climate agreement. It opened the door for “cooperative sectoral approaches and sector-specific actions” (ENDS Report 395, pp 4-5).

The case for sectoral agreements stems from the massive challenge of securing meaningful commitments to cut emissions by countries, many of which have steadfastly opposed absolute caps on emissions that might limit economic growth.

It was thought it might be simpler to strip out some of the big emitting industrial sectors from the main negotiations and get them to agree emissions cuts separately. Many industrialised sectors are dominated by a handful of global corporations with plants in a handful of countries.

Another reason is that industrialised countries fear that if they lead the way in cutting emissions, their carbon-intensive heavy industries will become uncompetitive, shrinking and shedding jobs. These industries would move to developing world nations without emission caps – so-called ‘carbon leakage.’

It was also hoped that developing world giants such as China might be more willing to sign up to action on climate change if their agreement on firm emission curbs was limited to a small number of carbon-intensive sectors.
But sectoral agreements have proved too much of a radical departure from the UN model of international climate negotiations.

Richard Baron, head of climate change at the International Energy Agency (IEA) in Paris, says the UN Framework Convention on Climate Change (UNFCCC), as an intergovernmental institution, is not well equipped to discuss sectoral agreements requiring direct industrial representation.

Emissions from aluminium, cement and steel are significant, but not enough to warrant institutional reorganisation.

Keith Allott, head of climate change at WWF-UK, agrees. The fundamental problem is that they do not fit into the UNFCCC’s architecture, which places responsibility for action on countries. Sectoral emissions controls would cut across national caps.

Dr Allott says the exceptions are shipping and aviation because their transnational activities make it difficult to assign responsibility for its emissions to one country (see pp 12-14). The deal at Copenhagen may also allow individual states to agree emissions reductions targets with carbon-intensive sectors.

Chris Bayliss, director of global products at the London-based International Aluminium Institute (IAI), raises other practical problems: “You’d have to have 100% of the industry signed up including producers of competing materials such as plastics and wood to avoid damaging competitiveness.”

He says sectoral agreements proved “unworkable”, despite their initial promise. As a result, the idea has received little support from countries.
Ian Christmas, director general of the trade body World Steel Association in Brussels, agrees sectoral agreements are unworkable. Despite being limited to specific industries, they were seen by developing countries as a move to impose global controls. This was unacceptable to countries with strong growth in steel ­production.

The European Commission’s decision to continue to give free carbon allowances to industrial sectors at risk from competitiveness impacts until 2020 under the EU emissions trading scheme has also taken the wind out of the sails of sectoral agreements.

Not that concerns over competitiveness impacts have gone away. Some in the EU – notably French president Nicolas Sarkozy – talk about border tax adjustments (BTAs) to protect industries from lower-cost products made in countries that do not sign up to carbon cutting measures. The draft US carbon trading bill contains a provision for levying BTAs (ENDS Report 417, pp 50-52).

BTAs aim to level the playing field between taxed domestic industries and untaxed foreign competition by imposing a charge on imports equal to the avoided cost of regulation. A recent report by the UN and the World Trade Organisation suggests that a charge on imported products such as steel or cement equal to the price of carbon would be permissible (see pp 6-8).

Alternative sectoral approaches

But global agreements on curbing emissions – or at least slowing the increase in emissions – across individual industrial sectors are not the only option. A reformed Clean Development Mechanism (CDM) could offer another way to tackle rapidly rising emissions from energy-intensive sectors in developing countries.

The CDM, established under the Kyoto Protocol, allows developed countries to implement emissions reduction projects in developing countries in return for saleable certified emissions reduction credits. But it is widely recognised that the bureaucratic project-based nature of the CDM means it has generated relatively few emissions savings.

One proposal for reform is sectoral crediting at the national level. This is similar to the CDM, but focuses on an entire industrial sector in one country rather than individual emissions reduction projects applying to a single site or company. Participating countries would set intensity-based emissions targets for entire industrial sectors and reward firms that outperform targets with saleable credits (see pp 6-8).

Other sectoral approaches continue in the aluminium, cement and steel sectors. They vary in ambition and stage of development but all three have common themes: they are voluntary industry-led initiatives focusing on gathering accurate emissions data and encouraging emissions reductions through improved efficiency.

Such initiatives do not offer the certainty of curbing emissions which a global treaty could deliver, but they do have benefits. Voluntary industry-led initiatives are a useful way to engage with companies in a non-threatening way. The aluminium, cement and steel initiatives enjoy growing participation by industries in developing countries. They can also help fill the vacuum on accurate emissions data – a prerequisite for management and reduction. The initiatives can also help reduce emissions by requiring members to set targets and report on progress.

Although the aluminium sector is responsible for less than 1% of global carbon emissions, it was one of the first to develop a voluntary global approach to cutting emissions.

The IAI’s Aluminium for Future Generations initiative includes objectives to cut perfluorocarbon emissions per tonne of aluminium by at least 50% by 2020 compared with 2006. These potent greenhouse gases have a global warming potential 6,000-9,000 times higher than CO2 and are released from aluminium smelters during occasional upsets in operating conditions. The industry says it has already achieved an 86% intensity cut between 1990 and 2006. Members report on progress in an annual survey. But the survey covers only 64% of the aluminium production, with some IAI members – notably those in China – not yet reporting.

The IAI also has a target for a 10% reduction in average smelting energy usage per tonne of aluminium produced by 2010 versus 1990. The target looks certain to be missed. By 2008 it had achieved only a 4% cut. Moreover, CO2 emissions are growing as a result of increased global production.

Newcomers

In contrast, the steel sector’s voluntary initiative is a newcomer. Launched in 2007 by the World Steel Association, it represents about 85% of the global industry. The entire steel sector is responsible for 3-4% of global carbon emissions. The initiative is primarily a data-gathering exercise and does not set targets to cut emissions. It seeks to improve performance by using the data to show site operators how they perform compared with others and by spreading best practice to reduce emissions.

Two thirds of the association’s membership has submitted data so far, including firms in India. Director general Ian Christmas says the big gap in reporting is Russia and China but he hopes they will begin next year.

A serious shortcoming is that the association does not publish an overview of the emissions data it gathers. Mr Christmas recognises that to be credible the industry will have to report publicly, but says the World Steel Association cannot push the industry too hard for fear of losing members. It has taken a long time to overcome concerns about how the data will be used, he adds.

The Cement Sustainability Initiative (CSI) is coordinated by the World Business Council for Sustainable Development, a Geneva-based global association of some 200 major multinational companies. Eighteen global cement companies are signed up including Cemex (Mexico), Heildelberg (Germany), Holcim (Switzerland), Lafarge (France), Shree and Grasim (both Indian) and Votorantim and Camargo Correa (both Brazilian). Members commit to set carbon reduction targets and to report on progress. The sector is responsible for nearly 4% of global greenhouse gas emissions.

Several Chinese cement companies are about to join the CSI. This will help improve its gathering of emissions data from this important market (ENDS Report 414, p 10).

Of the three industrial sectors, cement is the most bullish about its sectoral approach still having the potential to form the basis of a formal international agreement.

The CSI commissioned consultants ERM and Paragon Simulation to study the contribution that a sectoral approach could make in cutting global carbon emissions compared with other policy scenarios up to 2030.

The study considered six scenarios for the cement industry: no commitments on cutting emissions, an EU-only absolute cap, absolute caps in all developed countries, global carbon-intensity targets, global absolute caps and the ‘sectoral approach’. This latter is a mix of absolute caps in developed countries and carbon-intensity goals in developing countries.

The consultants found that total emissions increase in all scenarios, driven by cement demand in developing countries, but that the rise is less as the policies toughen. The study found emissions growth would be 25% less under the sectoral approach scenario compared with the no commitment scenario.

Next best option

Clearly, global emissions growth from cement production would be lower still if there is agreement at Copenhagen to adopt a global absolute emissions cap for cement production. But given the opposition from developing countries such as China and India to such measures, the CSI argues that the sectoral approach is the next best option.

“It looks to us like the sectoral approach is both feasible and promising in terms of helping to start emissions reduction activities,” says CSI programme director Howard Klee. “It encourages developing countries to participate, which is key to making any progress.” Four fifths of future emissions from cement production are likely to be in developing countries, he adds.

Dr Klee says the carbon-intensity goals for individual sectors would be taken up by governments of developing countries within their ‘nationally appropriate mitigation actions’ – the name for carbon reduction plans under the Bali Action Plan. Some sort of UN body would have to be set up to coordinate the ­programme.

But it is not clear how the CSI proposes to get around the problems that led the IEA and aluminium and steel sectors to conclude that sectoral agreements were unworkable.

Farming organisations do not support the notion of a binding sectoral agreement on greenhouse gas emissions controls for agriculture. But Nora Ourabah Haddad, senior policy officer at the International Federation of Agricultural Producers based in Paris, says it is lobbying to integrate agriculture into the four pillars of an agreement at Copenhagen on mitigation, adaptation, technology and finance as conceived in the Bali Action Plan.

Including agriculture within a new global deal on climate change has the support of 15 countries including the UK, France, Ireland, New Zealand, Australia and a few from Africa and Latin America. They have formed a working group, which met four times at the preparatory climate talks in Bangkok in October to draw up proposals. It is likely to recommend the formation of a UN committee for agriculture and climate change to develop a work programme. But it may be a long time before substantive measures are agreed.

Ms Haddad says agriculture has been largely ignored in the climate negotiations so far, which is surprising considering the importance of food security. While it is responsible for 10-14% of  global greenhouse gas emissions, it also stands to be severely affected by climatic changes such as water scarcity. Agriculture could make a significant contribution to reducing emissions through improved productivity and carbon sequestration.