2010 Reports

Sectoral crediting: getting governance right from the beginning

Wagner, Gernot; Keohane, Nathaniel E.; Petsonk, Annie

Several pathways lead into a low-carbon, high-efficiency future. Many go through something commonly called 'sectoral crediting', by which developing economies would both adopt emission reduction goals for entire economic sectors and allow reductions to be sold, via permits, into industrialized countries' compliance carbon markets. These twin elements of sectoral crediting contrast with project-by-project crediting, as is currently seen under the Clean Development Mechanism (CDM), and sector-level emission standards not linked to any market mechanism. Properly designed and operated, sectoral crediting could unleash substantial investment in efficient emissions reductions across entire sectors. A quick look at the numbers makes the appeal of and need for sectoral crediting clear. The world now emits roughly 45,000 million CO2-equivalent tonnes of greenhouse gases annually. In order to avoid the most dangerous consequences of climate change, that number needs to decrease swiftly, and by at least one-half to two-thirds by mid-century. Neither the market-based project-by-project approach of the CDM nor sectoral non-market standards on their own are likely to achieve this goal.