Policies To Reduce Greenhouse Gas Emissions in Industry - Successful Approaches and Lessons Learned: Workshop Report

COM/ENV/EPOC/IEA/SLT(2003)2
OECD ENVIRONMENT DIRECTORATE

AND
INTERNATIONAL ENERGY AGENCY
Policies to Reduce Greenhouse Gas Emissions in Industry -

Successful Approaches and Lessons Learned:
Workshop Report
OECD and IEA Information Paper
Organisation for Economic Co-operation and Development 2003

International Energy Agency
Organisation de Coopération et de Développement Economiques
Agence internationale de l'énergie
FOREWORD
This document was prepared in May 2003 by the OECD Secretariat for the Annex I Expert Group on the
United Nations Framework Convention on Climate Change. The Annex I Expert Group oversees
development of analytical papers for the purpose of providing useful and timely input to the climate
change negotiations. These papers may also be useful to national policy makers and other decision-
makers. In a collaborative effort, authors work with the Annex I Expert Group to develop these papers.
However, the papers do not necessarily represent the views of the OECD or the IEA, nor are they intended
to prejudge the views of countries participating in the Annex I Expert Group. Rather, they are Secretariat
information papers intended to inform Member countries, as well as the UNFCCC audience.
The Annex I Parties or countries referred to in this document refer to those listed in Annex I to the
UNFCCC (as amended at the 3rd Conference of the Parties in December 1997): Australia, Austria,
Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, the European Community,
Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein,
Lithuania, Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania,
Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom of
Great Britain and Northern Ireland, and United States of America. Where this document refers to
“countries” or “governments” it is also intended to include “regional economic organisations”, if
appropriate.
ACKNOWLEDGEMENTS
This workshop report was prepared by Stephen Bygrave and Jane Ellis from the OECD. It revises and
expands the workshop background paper prepared by the same authors, to take into account the
presentations, discussions and conclusions of the workshop. The authors thank Jan Corfee-Morlot, Nils
Axel Braathen and Nick Johnstone from the OECD and Jonathan Pershing and Richard Baron from the
IEA, as well as Heino von Meyer and Doug Russell for their input and advice on an earlier version of the
paper. The authors also thank Paul Curnow (Australia), Satender Singh (Canada), Erja Fagerlund
(Finland), Marcello Balasini (Italy), Erwin Mulders (Netherlands) and Mathias Duwe (CAN Europe), for
detailed comments on the paper.
Questions and comments should be sent to:
Stephen Bygrave Jane Ellis

OECD – Environment Directorate OECD – Environment Directorate
E-mail: [email protected] Email: [email protected]
Tel: +33.1.45.24.14.86 Tel: +33.1.45.24.15.98
Fax: +33.1.45.24.78.76 Fax: +33.1.45.24.78.76
OECD and IEA information papers for the Annex I Expert Group on the UNFCCC can be downloaded
from: http://www.oecd.org/env/cc/
2
TABLE OF CONTENTS
EXECUTIVE SUMMARY .......................................................................................................................... 5
1. BACKGROUND ................................................................................................................................... 7
2. INDUSTRY EMISSION AND POLICY TRENDS ........................................................................... 8
3. MEASURES OF SUCCESS............................................................................................................... 10
3.1 Environmental effectiveness............................................................................................................ 10
3.2 Economic efficiency ........................................................................................................................ 11
3.3 Other measures of success ............................................................................................................... 11
4. POLICY CONTEXT .......................................................................................................................... 13
4.1 Developing policy packages ............................................................................................................ 13
4.2 Competitiveness issues .................................................................................................................... 15
5. SPECIFIC POLICY INSTRUMENTS AND EXPERIENCE TO DATE IN
IMPLEMENTATION ................................................................................................................................ 17
5.1 Taxes................................................................................................................................................ 17
5.1.1 Carbon/energy taxes................................................................................................................ 17
5.1.2 Taxes on other gases ............................................................................................................... 18
5.2 Voluntary approaches ...................................................................................................................... 19
5.2.1 Voluntary approaches involving government and industry .................................................... 19
5.2.2 Other partnerships................................................................................................................... 20
5.2.3 Experience to date in VA design and effectiveness ................................................................ 21
5.3 Trading............................................................................................................................................. 22
5.3.1 Greenhouse gas emissions trading .......................................................................................... 24
5.3.2 Other trading instruments ....................................................................................................... 23
5.4 Interaction of instruments in the policy mix and complementarities............................................... 25
6. WORKSHOP CONCLUSIONS ........................................................................................................ 28
7. REFERENCES ................................................................................................................................... 30
8. GLOSSARY ........................................................................................................................................ 36
ANNEX 1: WORKSHOP AGENDA......................................................................................................... 37
ANNEX 2: LIST OF PARTICIPANTS .................................................................................................... 40
3
LIST OF TABLES
Table 5: Summary table of range of policy instruments either implemented or planned in selected AIXG
countries................................................................................................................................................ 14
Table 6: Energy/CO2 taxes and their use in industry in selected countries .................................................. 18
Table 7: Status of Domestic Emissions Trading Schemes .......................................................................... 23
LIST OF FIGURES
Figure 3: Shares of aggregated GHG emissions in 2000 by sector ................................................................ 8

Figure 4: Types of policy instruments to address greenhouse gas emissions in industry and the frequency
with which they are used ...................................................................................................................... 13
4
Executive Summary
The industry sector is an important direct and indirect source of greenhouse gas emissions in Annex I
countries. It is also a highly heterogeneous sector that has seen both rapid increases and decreases in direct
emissions from different sources over the last decade. Given these trends, the remaining potential for
cost-effective emission reductions in industry, and the difficulty in reducing emissions in other sectors
(such as transport), emissions from the industry sector are expected to draw increasing attention by
policy-makers as they look for means to reduce domestic greenhouse gas (GHG) emissions. For this
reason, the Annex I Expert Group (AIXG) on the UNFCCC decided to hold a workshop in Berlin on 2-3
December 2002 to discuss the range of policies to reduce greenhouse gas emissions in industry, with a
focus on voluntary approaches (VAs), taxes and trading. The overall aim of the workshop is to assess
experience and identify and promote successful approaches, “good practice” and lessons learned to date.
There are two key areas of greenhouse gas emissions in the industry sector: firstly, greenhouse gas (GHG)
emissions from energy use in industry; and secondly, greenhouse gas emissions from industrial processes.
In Annex I countries in 2000, direct emissions from the industry sector accounted for approximately 2108
Mt CO2 (15.4%) of total Annex I emissions from fuel combustion. Industry also accounted for a similar
proportion indirectly from emissions associated with industry use of electricity1. Process emissions, i.e.
emissions that are caused by the production process, accounted for a further 5% of total emissions in 23
Parties surveyed by the UNFCCC (UNFCCC 2002a).
A wide variation exists in the relative importance of policy instruments used to control GHG emissions in
different countries. To date, VAs have dominated in terms of numbers, with almost every AIXG country
having adopted a voluntary approach of one sort or another. Most VAs are energy or CO2-related, although
some also cover process emissions. A range of voluntary approaches have been adopted, varying from
voluntary non-binding agreements on reporting emissions and progress to self-defined targets to negotiated
agreements that are legally binding, have benchmarking and performance assessment and contain sanctions
in the case of non-compliance.
The success of various approaches and policy instruments to reduce greenhouse gas emissions from
industry can be measured in different ways. As well as GHG emission reductions beyond a
business-as-usual scenario (brought about for example by improvements in energy efficiency), policies
need to be economically efficient and minimise impacts on competitiveness. They also need to be feasible
to implement, and provide encouragement to invest in a low-carbon future.
Other measures of success could include non-GHG environmental benefits as well as “soft” measures of
success, such as an increased awareness within industry of climate change and potential mitigation actions.
In assessing areas for possible future progress, it will be important to take a holistic view of industry
emissions, which may require taking a broader look at how emissions can be reduced. Thus, the whole
production chain may need to be examined, as may issues related to product modifications (rather than
focusing on reducing emissions from a part of the production system).
A number of more or less formal partnerships/agreements to reduce or limit GHG emissions from industry
have also been developed. These include agreements between government and industry, industry and
non-governmental organisations (NGOs), within groupings of industry, or individual declarations by
particular companies.
1
Assuming a pro-rata distribution of electricity emissions to industry use of electricity.
5
Most countries have implemented energy taxes on fuels, some have implemented carbon or energy/carbon
taxes, but only one country has implemented taxes specifically targeted at reducing domestic industry
process emissions. Where energy/CO2 taxes have been implemented, some sub-sectors in industry
(particularly in energy-intensive industry) have been exempted or the tax rate significantly reduced due to
competitiveness concerns where firms are exposed to international markets.
Many countries are looking specifically at emissions trading, though parts of industry are sometimes
exempted from these schemes, and energy efficiency trading is also emerging as an area of interest. Other
countries have implemented other forms of trading that can indirectly be used to reduce industry emissions,
such as renewable energy certificate trading.
In countries where voluntary approaches, emissions trading and taxes have been implemented, there is
strong potential for complementarity between the use of these instruments and they are often combined
(more or less explicitly). For example, companies can often make some sort of trade-off between entering
voluntary agreements and being wholly or partially exempted from energy/CO2 taxes, or entering trading
schemes with similar incentives.
It is now timely to assess the effectiveness and efficiency of the various approaches implemented to date,
as well as the extent to which initiatives create incentives for additional investment in areas such as
technology innovation. This paper aims to address some of the key issues relating to the implementation
of good practice policy instruments to address greenhouse gas emissions in industry. Relevant policy
questions include:
1. What has been the experience of countries in implementing policies to reduce greenhouse gas
emissions from industry? Have some policies been particularly successful - why and under
what conditions?
2. What policy mixes are emerging and why? Are some more cost-effective than others? How
do the national circumstances of a country influence the mixes of policy instruments
observed?
3. Do the policy instruments work best in isolation or are there significant opportunities for
these instruments to complement one another? To what extent are emission reductions due to
technological improvements and business as usual activities, and to what extent has
additional improvements been encouraged by the policies put in place?
4. What tools can be used to help assess the effectiveness of individual measures?
6
1. Background
At the Annex I Expert Group meeting in March 2002, member countries agreed to hold a workshop, hosted
by the German government, on “Policies to Reduce Greenhouse Gas Emissions in Industry – Successful
Approaches and Lessons Learned”. A workshop was then held in Berlin on 2-3 December 2002. This was
a well-attended workshop with about 90 participants from industry, governments, and non-government
organisations (NGOs).
The workshop had the following objectives:
x Assess the effectiveness of emissions trading, taxes and voluntary approaches to reducing
greenhouse gas emissions from industry, the relationship between policy instruments and
their co-ordination, the advantages and disadvantages of each instrument;
x Analyse through case studies where particular approaches have been successful at reducing
GHG emissions beyond business-as-usual (BAU) practice, and how this has been determined;
x Identify conditions of and criteria for success, deficits in design and implementation of
various instruments;
x Examine issues relating to international co-operation and sectoral competitiveness;
x Outline lessons learned and implications for future trends such as technology innovation.
The focus of the workshop, and this paper, is on three policy instruments (voluntary approaches, taxes and
trading), their application in various OECD member countries – including their effectiveness and
interaction in the policy mix, impacts on competitiveness, case studies from industry in reducing
emissions, as well as partnerships between industry and other stakeholders to reduce greenhouse gas
emissions. The workshop also included a discussion on competitiveness issues emerging from GHG
policy. The workshop facilitated a frank exchange with industry, environmental NGOs and government in
an open and constructive setting and offered a range of suggestions for improving the performance of GHG
policies in reducing greenhouse gas emissions in industry.
7
2. Industry emission and policy trends

Emissions of greenhouse gases from the industrial sector2 are a significant proportion of emissions in
Annex I countries. In 2000, industry accounted for approximately 2108 Mt CO2 or 15.4% of direct CO2
emissions from fuel combustion and a similar proportion indirectly3 from emissions associated with
industry use of electricity, (IEA 2002a, b, and c). Industry also generates process-related emissions of
emissions of CO2 as well as emissions of N2O, CH4, HFCs, PFCs and SF6.
The “industrial sector” is highly heterogenous within and between countries, and emissions are reported in
many separate places within a national inventory (emissions will appear in all white sections of figure 1).
However, some general trends can be detected in emissions of different gases over the 1990-2000 period.
In general, CO2 emissions from direct use of fuels in the industrial sector have increased between 1990 and
2000 in the OECD Pacific region, decreased slightly in North America and Europe, and decreased
dramatically in countries with economies in transition (EIT)4. Electricity use in industry has grown in both
absolute and relative terms in all OECD regions, and in relative terms in EIT countries. These trends are
caused by many factors, including changes in GDP, changes in the level of industrial output, fuel switching
and structural changes.
Figure 1: Shares of aggregated GHG emissions in 2000 by sector
Waste Intl. bunkers Energy

Agriculture 3% 3% industries
7% (including elec.
Transport production)
23% 31%
Fugitive
emissions
3% En. use in other Industrial Direct fuel use
sectors process in industry
11% emissions 14%
5%
Source: Adapted from UNFCCC 2002a.
Industrial “process emissions” are emissions generated during the production process that are not
energy-related. Process emissions generally account for between 3-8% of total emissions (UNFCCC
2002a), although they can be very important in individual industry sectors, such as cement and aluminium
manufacture. They can also be important in countries with low carbon-intensive electricity production such
2
Manufacturing industries and construction only. IEA and UNFCCC 2002a figures for CO2 emissions from fuel
combustion differ slightly. See IEA 2002a for detailed explanation.
3
Industry accounted for 40% of all electricity use in Annex I countries in 2000.
4
IEA energy and emissions data for countries that were part of the former Soviet Union are generally only available
from 1992.
8
as Norway and France, where process-related industry emissions accounted for 20% and 23% of emissions
in 2000. In contrast to energy-related emissions, process-related emissions in Annex I countries decreased
by 21% from 1990 to stand at 702 mt CO2-eq. in 1999 (UNFCCC 2002b). However, this single figure
masks sometimes widely differing trends between gases and sectors. N2O emissions from industry (e.g.
from adipic acid production in the chemical industry) have decreased sharply between 1990 and 1999 or
2000 in many countries, e.g. -95% in the UK, -88% in Japan, -60% in France and -55% in Canada
(DEFRA 2001, GoJ 2002, MIES 2001, GoC 2001). These one-off reductions have helped some countries
meet their aim of stabilising 2000 emissions at 1990 levels (UNFCCC 2002a).
PFC emissions have declined in many countries, including Japan (GoJ 2002), most EC countries and in the
EU overall (CEC 2001). Trends in SF6 emissions vary. HFC emissions have increased very rapidly overall,
but the main driver behind this is their use in refrigeration equipment rather than in manufacturing
industries. Process-related CO2 emissions, e.g. from the production of cement and iron and steel, vary with
production levels of intermediate products. For the cement industry these emissions are an integral part of
the production process and cannot be reduced (although their relative importance can be diminished,
e.g. through product modification to produce blended cements).
Perhaps the most rapid emission trends in industrial emissions over the 1990s were due to technology
development, e.g. the ability to cost-effectively reduce N2O emissions from adipic acid production,
reductions in GDP, e.g. in EIT countries, or from demand growth, e.g. for HFCs. However, many countries
have also initiated policies and/or policy packages with the aim of limiting or reducing emissions from the
industrial sector. These policies have also been more or less successful in different countries and industries.
This background paper aims to summarise the policies and policy packages (focusing on voluntary
approaches, taxes and tradable permits) employed in Annex I countries to limit industry emissions, to
summarise the effectiveness of these policies to date, and to raise questions for discussion at the workshop.
The workshop focuses on policies aiming to curb emissions from industry energy use and industry process
emissions.
9
3. Measures of success
One of the aims of the workshop is to examine successful approaches to reducing greenhouse gas
emissions from industry. This raises the issue of what defines “success”? Key criteria to define
“successful” GHG mitigation policy in industry include:
x Environmental effectiveness (i.e. policies that result in real emission reductions - rather than
just displacing emissions – and that help countries and entities meet short-term emission
commitments).
x Economic efficiency (i.e. least cost policies that allow flexibility on where and how to
mitigate emissions such that investment in abatement flows to the cheapest options first).
x Limited impact on competitiveness and addressing these effects where they do occur.
In addition, policies should be feasible to implement and sufficiently forward-looking to provide incentives
to stimulate long-term technological innovation and investment in low-carbon intensity options over time.
There are also “softer” measures of success, such as increased awareness or engagement on climate change
issues. Naturally, different stakeholders may have quite different perceptions of what success may be.
3.1 Environmental effectiveness
The concept of environmental effectiveness has many aspects. In order to be effective at mitigating GHG,
the policy will need to reduce - rather than displace - emissions, as “leakage” of carbon or other GHG will
have no global benefits5. Policies may also need to address the broad picture, rather than focusing on
optimising the performance of individual sub-systems. For example, modifying products from (or changing
inputs to) industrial processes may have more GHG mitigation potential than increasing the energy
efficiency of a particular process.
A requirement to determining the environmental effectiveness of a policy is to have both a credible

business-as-usual (BAU) scenario and an appropriate monitoring, reporting and verification system.
Developing a BAU scenario is needed to assess whether or not an improvement in performance has
happened because of policies or actions put in place or whether it is something that would have occurred
anyway as part of normal business development. Whether policies quicken the rate of capital stock
turnover would also be an indicator of their environmental effectiveness compared to a baseline. A recent
study highlights that without significant policy signals or external market conditions, capital stocks tend to
be used much beyond their stated lifetimes (Lempert et al, 2002). While new physical investment is not the
only means to improve environmental outcomes, the impact of any given policy on capital stocks is
probably a good indicator of environmental effectiveness.
A transparent system for monitoring, reporting and verifying (MRV) emission performance is needed to
calculate actual emissions. Although there has been considerable progress on company-wide MRV
practices over the past few years, the emergence of certain policy instruments, such as emissions trading, JI
and CDM, require further progress be made. Additional efforts to improve entity level MRV will be
needed in many Annex I countries before the first commitment period as emissions accounting becomes
more complex.
5
Leakage could occur if industries became uncompetitive as a result of an introduced policy and had to relocate.
10
The various effects of different policies aiming to reduce GHG emissions may also need to be disentangled
from one another. However, while it may be relatively straightforward to determine the absolute energy
efficiency or emissions generated in a particular industry, it is more complex to determine how much of
this improvement is due to the introduction of an individual policy instrument as opposed to implementing
a range of policy approaches.
3.2 Economic efficiency
A GHG reduction policy is economically efficient if it enables and encourages low-cost reduction
opportunities to be taken up. Depending on how they are set up, environmental taxes, trading or VAs may
all prove more economically efficient than traditional “command and control” policies. They could also be
more distortionary, depending on how the issue of exemptions is dealt with. However, since VAs are not
necessarily uniformly applied within a country or across a sector they may not be as economically efficient
as taxes or trading, particularly if offsets from the Kyoto mechanisms cannot be used to comply with VAs.
When uniformly applied across the industry sector in a country, the use of taxes or trading provides a
consistent price signal to industry to reduce emissions where it is cheapest to do so. Coupled with revenue
recycling, the economic efficiency of taxes or tradeable permit systems can be further improved (OECD
2001b). When applied over multi-year periods with an expectation of ratcheting up in stringency, such
policies can also deliver dynamic efficiency benefits providing the incentive for continuous technological
innovation to limit emissions (OECD 1993)6.
The UNFCCC secretariat has attempted to examine the issue of cost-effectiveness when reviewing policies
and measures reported by Parties in their National Communications as required under the Framework
Convention on Climate Change (see UNFCCC 2002a). They observe the difficulties in assessing on the
cost-effectiveness of abatement options because only a few Parties actually report on the cost of measures
in their National Communications. In addition, in many cases countries do not report on the expected or
actual greenhouse gas reductions associated with each of their policies and measures. It is also difficult to
determine cost-effectiveness because it is a complex task to estimate expenditures by industry that were
additional to what would have occurred in the absence of the measure (UNFCCC 2002a).
The UNFCCC document also notes that the implementation of measures to reduce greenhouse gas
emissions in industry is often driven by economic rather than environmental concerns. For example,
reductions in input costs provide a significant incentive for industry to take actions to increase the energy
efficiency of operations. In many cases, reductions will be due to technological improvements or industry
restructuring, as in some of the Economies in Transition (EITs). Also, there may be some overlap between
emission reductions through requirements to replace ozone-depleting substances under the Montreal
Protocol.
3.3 Other measures of success
As well as being efficient from a GHG reduction and economic point of view, there are other possible
measures of success for GHG reduction policies in industry. For example, a policy will need to be feasible
enough, and have enough support amongst stakeholders, to be implemented. A forward-looking policy
capable of delivering increasing environmental performance over time would also be an advantage, given
that the climate regime may change within the lifetime of equipment investments. But which policy types,
6
Sectors where international competition is direct and where options to mitigate GHG emissions are costly or non-
existent, may be more prone to carbon leakage than sectors where there are cost efficient alternatives and sector
specific reasons (eg. transport, nature of the product, raw material) for production being more locally oriented.
11
or policy mixes best encourage research and development and/or technical innovation? Economic
instruments generally offer flexibility to stimulate long term investment in technological innovation
(dynamic efficiency), as well as contribute to cost-effective emission reductions over the short term (static
efficiency) (OECD 1993).
Policies that increase awareness and/or engagement of industry in climate change issues may also lead to
more climate-friendly investments in the longer term. Increased stakeholder awareness and participation in
policy development could also be a measure of success, as it would increase the likelihood that policies are
both credible and feasible to implement.
Success could also be assessed as the environmental effectiveness of policy instruments from both a
climate change and wider environmental perspective, such as whether they promote “co- or ancillary
benefits,” such as improvements in local air and water quality. Significant potential exists for ancillary
environmental benefits when using policy instruments to reduce greenhouse gas emissions. For example, a
regulation requiring industry to reduce SOx and NOx emissions has the potential to reduce air pollution,
increase health benefits, as well as reduce greenhouse gas emissions (OECD 2002c, Davis et al. 2000).
Ancillary benefits of reducing emissions in the aluminium sector include reduction of air and water
pollution and enhanced productivity in aluminium production (UNFCCC 2002a).
Policies may also be seen as successful if they result in social and economic benefits such as increased
employment and welfare. Policies may also result in a reduction in resource inputs and input costs or an
increase in health and safety (UNFCCC 2002a).
12
4. Policy context
Given emission commitments under the UNFCCC and the Kyoto Protocol, many AIXG countries are using
different policy types to reduce GHG emissions from industry. The policy aim and range is generally wider
in Annex II countries than EIT countries, as emissions from most EIT countries have dropped sharply since
1990 (particularly in the industry sector) due to profound structural change in their economies during this
period.
The full range of instruments includes, but is not restricted to, performance and technology-based
regulations and standards; research and development; information-based tools; economic and fiscal
instruments such as taxes, subsidies and trading; and voluntary approaches. Figure 2 illustrates the types of
instruments used to address greenhouse gas reduction in the industry sector of 23 Annex I Parties, as
outlined in their 3rd National Communications to the UNFCCC, and indicates the relative proportions (in
terms of numbers of policies) in which these are applied. This illustrates the importance of voluntary
agreements, regulation and economic instruments (taxes and trading) relative to other instruments used
such as information, research and fiscal mechanisms. The Annex I Expert Group workshop and this paper
focus only on three instruments: voluntary approaches (VAs); taxes; and trading.
Figure 2: Types of policy instruments to address greenhouse gas emissions in industry and the
frequency with which they are used
other
regulatory
research
information
fiscal
voluntary
economic
agreement
Source: UNFCCC (2002c)
4.1 Developing policy packages
The application of each of these instruments in individual countries will reflect a number of factors,
including a country’s national circumstances, industry structure, and exposure of these industries to
competition in international markets. Customized policies suitable for each country’s specific
circumstances are often required (Aiba 2002). The relative importance of different policy types varies by
country, as does the interaction between the policies.
Of the three policy types examined here, VAs are the most widely used (Table 1). To date, most countries
examined have implemented voluntary agreements with industry, focusing on key sub-sectors, and some
Annex I countries have had voluntary agreements in place since the early 1990s. Carbon or carbon/energy
taxes (i.e. taxes introduced with the aim of reducing energy use and/or fuel-related GHG emissions) are
13
quite common in European countries. Taxes aimed at reducing emissions of process gases or fugitive
emissions are much rarer. The use of various types of trading schemes is also growing rapidly. For
example, Denmark and the United Kingdom have implemented emissions trading schemes, and it is
expected that the European Union will introduce an emissions trading scheme from 2005. Some countries
(e.g. Australia, Austria, Denmark, Italy, the Netherlands, UK, some States in the US) have implemented
other trading instruments, including tradable renewable energy certificates, and energy efficiency trading,
and other countries (Canada, Japan) are actively considering establishing trading schemes. However, these
instruments often have the objective of promoting development of renewable energy and energy efficiency
technologies rather than specifically reducing greenhouse gas emissions.
Table 1: Summary table of range of policy instruments either implemented or planned in selected
AIXG countries
Taxes Trading
Voluntary Energy7 Industry Emissions Renewable
Approach or CO2 specific energy or
energy
efficiency
Australia 9 9* 9
Austria 9 9 9
Belgium 9 9 9
Canada 9 9
Czech Republic 9 9
Denmark 9 9 9 9
Estonia 9 9
Finland 9 9
France 9 9** 9 9
Germany 9 9 9
Italy 9 9 9
Japan 9
Netherlands 9 9 9 9
New Zealand 9
Norway 9 9 9 9
Slovakia 9
Sweden 9 9 9
Switzerland 9 9 9
United Kingdom 9 9 9 9
United States 9 9* 9*
* At State level only
** Plans currently suspended
Source: UNFCCC (2002a, 2002c), Baron and Serrett (2002), Costyn (2002), Malaman and Pavan (2002).
Table 1 also illustrates that countries generally use a mix of policies, rather than relying solely on one
policy type. Braathen (2002) and Torvanger (2002) also advise that governments rely on other instruments
than VAs alone to achieve policy objectives. However, little work has been done to assess what
combinations of policy instruments are likely to be the most effective and efficient complements. The
complementarity issue is discussed briefly in section 5.4 of this paper.
7
This table does not include excise taxes on fuels – most countries have implemented these.
14
Policies can have different results depending on how they are designed and applied. For example,
voluntary agreements that are considered most effective are those negotiated within a framework that
exerts pressure on companies to join the agreement and achieve their stated targets (UNFCCC 2002a).
Thus, the framework within which a policy operates is a crucial determinant of success. In addition,
life-cycle analysis could be a useful tool in the future design and application of policies, and in determining
at which stage in the life-cycle to place a carbon constraint (see Aiba 2002, Gagnier 2002).
4.2 Competitiveness issues
There are many factors that can affect the competitiveness of a country or sector in both the short and long-
term. These include exchange rates, political stability, skill of the labour force, tax policies, both
environmental and non-environmental legislation, levels of R&D and access to markets (Raynolds et al.
2002, Barker and Johnstone 1998). Some of these factors are more subject to uncertainty than others. Thus,
while actions that increase the marginal costs of production can impact the competitiveness of the firm,
region or country that is affected by the increase they are only one of several possible factors that can
impact competitiveness.
An uneven application of GHG reduction policies such as taxes, or an uneven allocation of emission
permits, can affect the competitiveness of individual firms or sectors within a particular country when
compared with similar industrial activities in another country. This is particularly important for industries –
such as chemicals, iron and steel - whose goods are: 1) very GHG-intensive; and, 2) widely traded.
Competitiveness impacts and carbon “leakage” may be of particular concern to countries such as Japan and
Australia whose major trading partners are developing countries without GHG commitments and therefore
unlikely to impose similar regulations (Aiba 2002). For this reason, industry has strongly opposed the
introduction of environmentally-related taxes (OECD 2001b) and is liasing with governments in providing
industry views on the quantity of emissions permits allocated under a domestic emissions trading scheme
as well as on allocation modes. For example, the Japanese industry association Keidanren argues that
taxes undermine competitiveness and discourage investment in technology (Aoyama 2002).
While taxes have nevertheless been introduced, mostly in European countries, competitiveness concerns
have been taken into account in their design. Different governments have chosen different means to soften
the effect of taxes on industry competitiveness. This can involve either providing full or partial exemptions
for certain industries. A recent study by Morgenstern et al (2002) show that a carbon tax – or a similar
price signal through emissions trading – would have a significant effect only on a small number of
manufacturing sectors in the United States in the near-term, i.e. before any technology improvements can
take place. Any exemption policy may be fairly limited in scope in order to offset the most negative
competitiveness impacts.
Governments can also consider phasing-in tax increases/permit decreases over a period of time that allows
investment in more energy-efficient or GHG-friendly technologies. For example, German tax rates for
manufacturing industry/electricity are phased in: they will double between 1999 and 2003: to 0.41
EUR/1000 kWh in 2003. Tax rates in Denmark’s “Green Tax Package” tax rates are also differentiated
over time (tax rates rise yearly) and by industry type (energy intensive industries are subject to lower tax
rates than less energy-intensive industries). Moreover, revenue from the tax is recycled to the sectors
affected by the tax (Hansen 2001). This tax package is nevertheless expected to reduce industry emissions
by 4% in 2005 compared to 1988 levels (Hansen 2001). This effect is largely due to the structure of the tax
package: companies that have entered into an energy-efficiency agreement with the Danish Energy Agency
pay much lower rates of tax, e.g. 0.4 ¼W&22 in 2000 instead of 3.3 ¼WIRUHQHUJ\-intensive industries.
15
Industry is also exempt in some of the greenhouse gas emissions trading schemes being implemented, and
in others DET systems work very closely with energy and carbon taxes (see section 5.4 below). The issue
of exemptions in EU countries has been discussed as part of the development of the EU emissions trading
Directive. The primary reason for this discussion is the exposure of some industry sectors to international
markets, and the potential for a loss of competitiveness for those industries liable under any trading
scheme. Some have examined this issue in more detail for specific industry sectors – for example Quirion
(2002) has examined the impact of the EU trading Directive on the iron and steel sector, and has concluded
that the impacts of the Directive on this sector would not be significant. Quirion also maintains that the
proposed amendments to the Directive to protect competitiveness with an opt-out clause would have some
repercussions on the competitiveness of activities covered by the Directive8.
Although VAs are generally thought of as not having competitiveness impacts, there may nevertheless be
costs associated with their design and implementation, although they are likely to be less visible than a
straight price signal on GHG emissions. This could be the case for VAs that have sanctions in the case of
non-compliance and/or are costly to negotiate, monitor and report on.
Environmental leadership drives firms to be more innovative and create additional value for its customers
and shareholders, and seek new business opportunities (Raynolds et. al., 2002). Action can also lead to
direct gain over competitors through first mover advantage (Boyd 2002) and indirect gains through an
improved or “greener” reputation (Gagnier 2002).
8
O’Brien and Vourc’h (2001) also note the inefficiencies related to applying exemptions when using environmental
taxes.
16
5. Specific policy instruments and experience to date in

implementation
The following section examines the implementation of taxes, voluntary approaches, and trading
instruments applied in Annex I countries, and the experience in various countries to date. The section only
focuses on the application of these instruments in the industry sector, and on particularly innovative
approaches, or on situations where one or more instruments have been adopted in a unique way. The final
part to this section examines the interaction of policy instruments where more than one instrument has
been used, reasons why different instruments may have been implemented, and the potential for different
instruments to be complementary to each other when working together in the policy mix.
5.1 Taxes
Taxes are part of the policy mix used by some Annex I countries to reduce GHG emissions9. These include
carbon taxes, carbon/energy taxes as well as taxes on process emissions such as N2O (although the latter
are very rare).
5.1.1 Carbon/energy taxes
Carbon taxes were first introduced in the early 1990s in a handful of northern European countries. Carbon
or carbon/energy taxes are becoming increasingly used by countries to reduce CO2 emissions, despite
significant concerns raised by industry. Recent carbon/energy taxes that have been introduced include the
UK’s “climate change levy” and Estonia’s CO2 tax (5 EEK or 0.32 Euro) per t CO2. Poland is also
planning to introduce a CO2 tax.
In most countries, when a carbon or carbon/energy tax has been established, it is often done as part of a
“green tax reform” where environmental taxes are used to reduce existing, more distortionary taxes (OECD
2001b). The carbon or carbon/energy taxes introduced in different countries can have somewhat varying
aims, e.g. to increase energy efficiency (e.g. in Denmark), or to raise revenue as well as increasing energy
efficiency or environmental performance (e.g. in the Netherlands).
When setting individual tax rates, governments need to ensure that rates are high enough to be effective
and provide sufficient incentive for action while ensuring that they are not so high that industries close
down or relocate, which could just result in carbon “leakage” rather than reduction (see e.g. Gielen and
Moriguchi 2002). Governments have approached this issue in various ways. For example, some
governments have decided, for competitiveness reasons, to allow industry complete or partial exemptions
from carbon or carbon/energy taxes applied elsewhere in the economy. Tax rates/exemptions have often
been revised frequently. For example, Sweden’s energy tax rates were changed substantially in 1991, 1993
(where tax rates for industry were reduced for competitiveness reasons), and 1995. Of course, exempting
industry from carbon taxes will severely affect the effectiveness of these taxes (Norwegian Ministry of
Environment 2002, Torvanger 2002).
9
This section focuses on environmental taxes and does not deal with excise taxes, which are widespread.
17
Table 2: Energy/CO2 taxes and their use in industry in selected countries

Country Status Tax applied to: Industry exempted?
Austria Updated Energy Partial - tax paid on electricity consumption
2000 by manufacturing industry subject to upper
limits (absolute payments and in terms of
value added).
Belgium Planned Energy Planned.
Denmark Updated CO2 Yes, if signed agreement on energy
1996 efficiency.
Estonia Implemented CO2 No, but the tax rate is very low.
2000
Finland Updated Energy/CO2 Yes, for energy sources not used as fuels.
1998 For fuels, an exemption of 85% of the
portion of tax exceeding 3.7% of value
added.
France Suspended Energy/CO2 NA
Germany Implemented “Eco-tax” 80% discount on fuel and electricity
1999 component for manufacturing industries,
further exemptions for energy-intensive
industry*
Italy Implemented CO2 No, but tax applies to fossil fuel combustion
1998, only (i.e. fossil fuels not used as energy
revised 1999 sources are exempt).
then
suspended.
Netherlands Implemented Energy (“regulatory No, there is however a ceiling on the amount
1996 energy tax”) of energy on which tax must be paid: 10
million kWh and 1 million m3 of natural gas
(except when it is used to generate
electricity).
Norway Updated CO2 Yes (but industry will not be exempt from
1999 emissions trading scheme which may start in
2005).
Sweden Updated CO2 Yes: 65% refunds are given for energy
2001 sources used as non-fuel inputs to
manufacturing industries. Upper limit on
payments.
Switzerland Planned for CO2 Yes, if have made and kept to voluntary
2004 agreements on CO2 emissions.
UK Implemented Energy 80% discount for industries who have taken
2001 on an emissions or energy efficiency target.
* The new German government has proposed reducing the rebate to 40% (ENDS 2002).
Tax exemptions in some countries are tied to the environmental performance of industries. For example,
the large exemptions for energy-intensive industries in Denmark will be rescinded and the company liable
for taxes if the energy-efficiency agreement with the government is broken.
5.1.2 Taxes on other gases
Emissions of non-CO2 gases from industry are more commonly limited by non-tax policies such as
regulations or voluntary approaches. However, France has put in place a tax on emissions of non-CO2
gases: N2O emissions in industrial facilities are taxed at 0.125 ¼W&22-eq. This very low tax rate is planned
to be increased (Government of France 2002).
18
Norway put in place a tax of 180 NOK/t CO2eq. on the bulk import of HFCs and PFCs from the beginning
of 2003 (Weidemann 2003). The level of this tax reflects that on CO2 emissions. There are no exemptions
to the tax, although there are plans to make the tax refundable if HFCs and PFCs are destructed as wastes
(Weidemann 2003).
5.2 Voluntary approaches
The use of voluntary approaches (VAs) as a tool to reduce emissions from industry is widespread, and has
been used as a tool to reduce GHG emissions since the early 1990s in some countries.
VAs can be classified into one of four types (OECD 1999): unilateral commitments by industry; private
agreements between industry and stakeholders; environmental agreements negotiated between industry and
government; voluntary programmes developed by government that individual firms can join. VAs with
national and/or regional governments can, and are, being entered into at the company, industry association
or sector-wide level.
5.2.1 Voluntary approaches involving government and industry
The move towards policy instruments such as voluntary agreements and trading, and concerns that taxes
should not adversely affect the competitiveness of domestic industries, has meant that governments are
increasingly involving industry partners when developing or revising emission mitigation policies for the
industry sector. Thus, for example, the Swiss government developed its guidelines on voluntary
agreements in close consultation with business (Mörikofer 2001).
Energy-related VAs (i.e. covering either energy-efficiency or energy-related CO2 emissions) between
governments and industry have been in place for many years, and there is extensive experience with, and
analysis of, the effectiveness of such agreements (e.g. OECD 2002b, ten Brink 2002, Karup and Ramesohl
2000). VAs covering process emissions have also been developed, e.g. in Germany, the Netherlands, Japan
and the UK (EFCTC 2000).
Many different types of VAs have been used to reduce greenhouse gas emissions from industry. VAs can
vary significantly from one another in terms of their design, e.g. in whether or not they are legally binding,
include sanctions for non-compliance, or allow companies to use offsets such as from clean development
mechanism projects or emissions trading. The administrative and transaction costs of VAs also differ.
Voluntary programmes developed by government that individual firms can join often involve setting
emission reduction targets and monitoring and reporting a company’s emissions inventory (e.g. in the US
climate leaders partnership). These voluntary programmes are typically not linked directly to other policy
types (e.g. environmental taxes).
Voluntary environmental agreements negotiated by government and industry where industry aims to meet
a specific energy-efficiency or emissions performance standard can have very different characteristics. For
example, these VAs may be binding once entered into, and may also involve regulatory or fiscal sanctions
in the case of non-compliance, e.g. in the Danish agreement on industrial energy efficiency. This issue is
addressed further in section 5.4 of this paper.
The role and importance of VAs in the policy mix can also vary from country to country, and is often
linked to the proportion of industry covered by VAs. Governments in countries such as Australia, Canada,
19
Germany, Japan and the United States have placed a strong emphasis on the importance of voluntary
approaches to develop emission-reducing partnerships with industry.
VAs, in combination with fiscal incentives and environmental permits, are the main policy tool used to
limit industry GHG emissions in the Netherlands, and companies that account for almost all (96%) of
Dutch industrial energy use have subscribed to an energy efficiency “benchmarking covenant” (ENDS
2002). The “long-term agreements” between the Dutch government and different industry sectors are
legally binding once entered into. The German 3rd National Communication to the UNFCCC also indicates
that VAs in industry are expected to have a greater GHG impact than any other policy instrument in
reducing GHG emissions to 2010 (Government of Germany 2002).
Coverage can vary greatly between countries. For example, 100% of aluminium and cement producers,
98% of electricity generation and distribution and 98% of oil and gas extraction have signed up to the
Australian “Greenhouse Challenge” (AGO 2002, Shevlin 2002). However, less than 40% of industrial
energy consumption is covered by VAs in France (Karup and Ramesohl 2000) and the third French
National Communication indicated that the then government did “not feel that voluntary commitments …
should be given priority” as part of a new GHG reduction programme (Government of France 2002).
5.2.2 Other partnerships
Because of the sheer scale of company-wide emissions and the increased awareness and involvement of the
business community in climate change issues, partnerships are becoming increasingly important in the
policy packages developed to limit greenhouse gas emissions from the industrial sector. These can also
include industry/NGO partnerships and industry/industry partnerships as well as government/industry
partnerships described above.
Many innovative industry/NGO partnerships have been developed. For example, WWF has set up a
“Climate Savers” programme where it works with individual businesses to set targets for GHG reduction
strategies. Six companies have entered this programme, including Lafarge, whose target includes aims to
reduce energy-related emissions, increase the proportion of renewable energy sources and use materials
substitution to reduce the GHG intensity of final products (WWF 2002). Credits from the Kyoto
mechanisms will not be able to be used against such a target. Other forms of partnership are groupings of
industries and NGOs. These include the “Partnerships for climate action” (Petsonk 2002), where eight
energy, energy producing or energy-intensive companies partnered with Environmental Defense (a
US-based NGO) and have committed to set environmental targets and track progress to these targets with
the possibility to trade reductions when available.
Voluntary GHG mitigation activities have also been initiated by individual companies, industry
associations or groupings. For example, both BP and Shell have committed to specific greenhouse gas
reduction targets, with Shell committing in 1998 to reducing its 1990 emission levels by 10% in 2002. The
Japanese industry group -Keidanren- initiated a “global environmental charter” and many of their industry
branches have subsequently drafted their own voluntary action plans under this umbrella. Many of these
have targets that include either absolute or relative GHG targets. Ten global cement companies have
developed “The Cement Sustainability Initiative” for 2002-2007 under the umbrella of the World Business
Council for Sustainable Development. This initiative outlines individual or joint actions to set emissions
targets and monitor and report emissions.
Other industry/industry partnerships have been established to provide a forum for discussion of issues
relating to greenhouse gas emissions in industry and to develop a coordinated industry response and work
with government to meet their needs. For example, in Australia an industry group called the Australian
20
Industry Greenhouse Network commonly participates in consultative steering groups in the development
and implementation of government policy. This situation is not unique to Australia.
However, although they represent a new and innovative policy direction, and show positive initiatives by
industry to self-regulate, partnerships that do not involve government or non-industry third parties raise
some questions. Unlike some VAs, there is no direct legal or regulatory come-back should any pledges
made not be met, so how much should governments rely on independent partnerships to meet an emissions
commitment? Does the development of these partnerships delay useful regulatory action on the part of
government without delivering real emission reductions? Or do they deliver real reductions that justify
such a delay? How can it be ensured that the monitoring and reporting from such partnerships is credible,
and does not result in double-counting or gaps with national emission accounting efforts?
5.2.3 Experience to date in VA design and effectiveness
VAs are popular instruments, and are becoming increasingly so, because they are voluntary, flexible and
do not negatively affect competitiveness.
Unsurprisingly, the structure of the VA (e.g. how it is developed, what the measures of success are, the
independence of any follow-up evaluation or monitoring, whether or not there are any sanctions for
non-compliance) can influence how effective it is at reducing emissions beyond business-as-usual levels10.
Thus, more detailed and targeted voluntary approaches are likely to be more environmentally effective
(Braathen 2002) and more cost-effective (Phylipsen and Blok 2002), although they also require a greater
up-front government involvement. Indeed, although VAs are “cheaper” to implement than subsidies, the
Dutch voluntary agreements have been estimated to cost 10-15 ¼W&22 (Phylipsen 2002).
It is difficult to compare the “stringency” or otherwise of different targets in the same sector, as different
VAs are measured using different units, timeframes and/or boundaries. For example, the German VA on
the steel industry is to reduce emissions of CO2 per ton of rolled steel by 16-17% by 2005 compared to
1990. The Japanese target for the same sector is to reduce total energy consumption by 10% in 2010
compared to 1990 levels.
However, there are widely differing views as to the environmental effectiveness of VAs. Some
governments, as well as industry, are of the opinion that VAs are highly effective in reducing GHG
emissions (e.g. Sullivan and Rand 2001, CEC 2001, IAI 2002). This was echoed by some presentations by
industry representatives at the workshop (e.g. Gagnier 2002, Boyd 2002). Some governments indicate that
VAs have played a part in achieving reductions in industry emissions: for example, the Dutch government
indicates that the energy efficiency improvement in industry sectors with long-term energy-efficiency
agreements was 2.2%p.a. whereas the autonomous energy efficiency improvement expected over the same
period was 1.3%.
Others are much more skeptical about the effect of VAs in reducing emissions over what would have
happened anyway (e.g. Government of France 2002). Notably, some independent assessments of voluntary
approaches - while acknowledging that there have been absolute emission improvements brought about by
investments in cleaner technologies - have indicated that there is little improvement over BAU scenarios as
these investments would have probably happened anyway (e.g. Rietbergen and Blok 2000, Kågeström et.
al. 2000, OECD 2002b). In other cases, the fact that some targets set by VAs are met well ahead of
schedule has led to questions about the validity of such targets (Buttermann and Hillebrand 2000). Thus,
10
The economic efficiency of VAs can be low, as they seldom incorporate mechanisms to equalise marginal
abatement costs between different emitters (Braathen 2002).
21
Braathen (2002) notes that if VAs are not sufficient to stimulate lower GHG emissions than would have
happened in a business as usual scenario, their environmental effectiveness is questionable.
However, it is difficult to assess the environmental effectiveness of VAs, particularly if a business-as-usual

scenario has not been developed at the commencement of the initiative (which may often be the case for
voluntary programmes where the main aim is to monitor and report absolute emissions rather than
determining emission reductions compared to a BAU scenario).
The UNFCCC (UNFCCC 2002a) indicate that those VAs which have a target that has been negotiated
between governments and industry, i.e. voluntary environmental agreements, appear to be most effective.
However, some negotiated agreements have not been very successful in reducing GHG emissions, even
when regulatory incentives are present (Mörikofer 2001). Other analysis has indicated that VAs work best
as part of a policy package, rather than as a stand-alone instrument (Torvanger 2002, Krarup and
Ramesohl, 2002 - see also section 5.4). Braathen (2002) indicates that the performance of many VAs
would be improved if there were a real threat of other instruments being used if targets are not met.
However, there are other (non-environmental) “soft” benefits that can be derived from the process of
developing, as well as implementing, VAs. For example, the negotiations needed to develop VAs can help
to some extent raise awareness of climate change issues and potential mitigative actions within industry
(e.g. Kågeström et. al. 2000) – both at management and operational levels. This can therefore help to move
industries towards best practice. They can also help establish an arena for industry/government (or
industry/NGO) dialogue. An evaluation of VAs in the Netherlands also found that implementing VAs can
improve companies’ systematic approach to and technical knowledge of energy conservation activities
(Rietbergen and Blok 2000).
Some analyses (e.g. OECD 1999, WWF 2000) recommend design characteristics that would help to
improve the environmental effectiveness of voluntary approaches. These include setting clearly defined
targets, developing a business-as-usual (baseline) scenario, having incentives in the case of
non-compliance (e.g. sanctions or regulatory threats), putting in place an effective monitoring mechanism
(including through an independent agency); and including third-party participation in the design of the VA.
However, setting up VAs that meet these characteristics requires considering compliance incentives and
penalties. It also requires real engagement and commitment by industry stakeholders to develop
meaningful VAs, to allow independent monitoring, and to disclose information on GHG mitigation
measures taken. The willingness of parties to undertake such actions can vary greatly (Buttermann and
Hillebrand 2000). Defining the role, scope and functioning of VAs also requires time (e.g. for negotiations
between government and industry) and money on both sides. For example, early Danish VAs were
estimated to cost 17,000-33,000 Euro per firm and annual monitoring costs for Dutch VAs were estimated
at 50,000 Euro per sector (Karup and Ramesohl 2000). This has led to a restructuring of the Danish scheme
in order to reduce costs, and an indication by the Dutch government that the new round of “long-term
agreements” will be aimed at larger energy consumers only (van Luyt 2000).
5.3 Trading
Various trading instruments have been applied to address greenhouse gas emissions in industry in Annex I
countries, including greenhouse gas emissions trading renewable energy certificate or green electricity
trading and energy efficiency trading. Whereas the primary objective of domestic emissions trading
schemes is to reduce greenhouse gas emissions, the primary objective of renewable energy certificate
trading schemes is to promote the development and diffusion of cost-effective renewable energy sources,
with a reduction in greenhouse gas emissions being a secondary objective.
22
Table 3: Status of Domestic Emissions Trading Schemes

Country Coverage Initial Permit Interface with other instruments
Allocation
Canada Not yet certain. Both narrow and Both grandfathering Transitional voluntary
“broad as practical” coverage and auctioning credit-trading scheme (for
considered. considered. reduction beyond what is required
by regulation) considered prior to
mandatory cap-and-trade scheme.
Denmark CO2 from electricity production only, Grandfathering Trading covers electricity
about 30% of 1997 CO2 emissions. generation, supplementing the tax
covering others.
EU Initially CO2 only (from 2005), then During 2005-7, Some discussion on the possibility
eventually all Kyoto gases after 2008. grandfathering of to exempt certain sectors /
Approx. 46% of EU’s estimated CO2 allowances by companies from the Directive until
emissions, covering 4,000 – 5,000 sites. Member states, which 2007. Synergies with the IPPC
Sectors include electricity and heat; will be required to Directive intended.
iron and steel; refining, glass and apply common
building material; and pulp and paper. criteria for their Anticipated that future revisions or
The chemical sector is not included for national allocation. new directives will establish links
the most part. with JI/CDM mechanisms.
France Large industrial sources. All Kyoto Based on voluntary Linking to EC system and Kyoto
gases. Possibly as early as 2003. agreements. mechanisms explicitly envisioned.
Norway All Kyoto gases and all sectors To be determined, In parallel with carbon tax from
possible; over 80% to be captured. partial auctioning, 2005, eventually to replace it after
partial grandfathering. 2008.
Startup in 2005.
Slovakia Both mandatory and voluntary To be determined.

participants. Sources emitting CO2.
Expected start-up in 2006
Switzerland Large emitters, companies and energy Based on voluntary Tax on fossil fuels will be imposed
intensive producers can exempt agreements. Free from 2004 if voluntary measures
themselves from the CO2 law by allocation. insufficient.
adopting absolute CO2 limit, with
possibility to trade.
Pilot phase 2005 – 2007.
UK Emission Trading Scheme (ETS) on Free allocation of Firms that negotiate Climate
voluntary basis for any firms that allowances. Direct Change Agreements qualify for
commit to binding targets, with the participants bid for 80% discount on Climate Change
choice of CO2 only or all Kyoto gases. reduction Levy and eligibility for baseline
ETS launched in April 2002, and will commitments in an and credit trading. This is
run from 2002 until the end of 2006. auction for incentive integrated into cap-and-trading by
monies. the direct participants in the ETS.
Source: Baron and Bygrave (2002), Kitamori (2002).
23
5.3.1 Greenhouse gas emissions trading
Emissions trading is an economic instrument that has been used since the 1980s to address non-greenhouse
gas emissions. Recently, trading has been an instrument of choice to address GHG emissions, with
domestic schemes being introduced in Denmark in 2001 and the United Kingdom in April 2002, and
several other countries planning to do so well before 2008. Many of these schemes cover industry
emissions - to a greater or lesser extent.
The emissions trading scheme in the United Kingdom will involve more than 4,000 companies while the
proposed scheme in Norway will cover sectors currently exempt from the carbon tax, such as energy- and
emissions-intensive manufacturing industries (for example metals and chemicals). The proposed EU
scheme would cover energy combustion installations greater than 20MW, as well as oil refineries, coke
ovens, metal production and processing, as well as producers of cement, glass, ceramics, pulp from timber
and paper products, and include 4,000 – 5,000 installations (European Commission 2001). As the
emissions trading scheme in Denmark targets CO2 from electricity production only, it is only relevant for
the industry sector to the extent that firms may generate their own electricity and export this electricity to
other users.
Several other European countries (France, Slovakia, Switzerland, and Norway) are developing their own
domestic emissions trading schemes (DETs), with expected start-up of the French system as early as 2003
(see Table 3). The European Union is expected to introduce a European Directive on emissions trading
commencing in 2005. Each of these systems have varying designs, cover different sectors and gases and
have different methods of allocation, resulting in issues relating to their compatibility, the extent to which
they can be linked and technical design solutions that can be implemented11. Table 3 outlines the status of
various DETs, and in particular various design elements associated with them. The last column in Table 3
also indicates where and how the trading schemes interact with other policy instruments, and this topic is
further addressed in section 5.4.
5.3.2 Other trading instruments
Various Annex I countries have also designed and implemented a number of other trading schemes in
addition to greenhouse gas emissions trading. These include tradeable renewable energy certificate trading
schemes and the emerging energy efficiency trading schemes.
Reducing greenhouse gas emissions is not the primary objective of renewable energy certificate trading or
energy efficiency trading. However, they are relevant to industries that generate their own electricity (as in
some pulp and paper plants using black liquor) or that are energy-intensive. Renewable energy certificate
trading has been initiated in several countries (table 4).
Energy efficiency trading is being considered in Italy through the Energy Efficiency Certificate Market and
in the UK through the Energy Efficiency Commitment (see Costyn 2002, Malaman and Pavan 2002). Such
systems target a fixed amount of energy savings (Baron 2002); entities can trade surplus energy efficiency
certificates. Industrial electricity users could benefit from these mechanisms if they can generate
significant savings that liable entities (electricity suppliers and distributors) could use to comply.
11
For further discussion see Baron and Bygrave (2002).
24
Table 4: Summary of Tradable Renewable Energy Certificate Schemes

Country Target Implemented/being considered
Australia Mandatory Renewable Commenced April 2001
Energy Target
Austria Implemented
Belgium Implemented
Denmark Proposed
Italy Green Certificates System Implemented
Netherlands Green Certificates Scheme Implemented – voluntary
Sweden Proposed
United Kingdom Renewables Obligation Implemented
commences April 2001
United States Renewable Portfolio Implemented
Standards in New Jersey,
Texas and Wisconsin
Source: Baron and Serrett (2002).
There are potential linkages between energy certificate trading schemes and greenhouse gas emission
trading schemes, e.g. if renewable energy or energy efficiency certificates can be traded in greenhouse gas
emissions trading systems. For example, under the UK scheme, entities can trade carbon savings into the
UK Emissions Trading Scheme (Costyn 2002).
5.4 Interaction of instruments in the policy mix and complementarities
A key consideration for Annex I countries is how to design policy instruments to address greenhouse gas
emissions so they are complementary and work together efficiently and effectively in the policy mix.
Important issues include how to provide the right incentives for different stakeholders to reduce GHG
emissions at minimum cost and how to target stakeholders with different requirements such as exposure to
international markets. This section briefly examines these issues.
Very little work has been done on the conditions under which the use of multiple environmental policy
instruments is likely to be preferable to the application of a single policy instrument. Moreover, little work
has been done on examining the combinations of policy instruments which are likely to serve as effective
and efficient complements (OECD 2002d).
As shown in Table 1, many countries use multiple policies and measures to target reduced emissions from
the industry sector. However, these policies are used in different ways in different countries. For example,
policies can operate at the same time in a “complementary” way, often as a result of bargaining between
governments and target sectors. Alternatively, there can be a clear policy “evolution” where one policy
follows another. Sometimes, complementary policies are used to hit the same target more than once, e.g. in
the UK where individual companies may be subject to both taxes and trading. Other complementary
policies can be targeted to work in parallel, targeting different entities. This is the case for Norway’s
proposed emissions trading scheme, which has been designed to work in parallel with the carbon tax: when
the trading scheme starts in 2005, it will include emissions sources that are exempt from the tax
(Government of Norway 2002b). In other countries, both taxes and emissions trading have been applied to
target the same entities. For example, in Denmark the tax and permit regime will co-exist for a period of
time, before the former is discontinued. Hartridge (2002) refers to the interaction between various policy
instruments such as the Climate Change Levy, emissions trading scheme and the Climate Change
Agreements in the UK.
25
An evolutionary approach to policy mixes has been used in other countries, e.g. Switzerland, where taxes
will be applied if VAs have not delivered the results hoped for. Alternatively, two or more policy types can
be used to target different actors in the same sector, with the policy used depending on, for example
marginal abatement costs or company size (smaller companies may not be able to absorb transaction costs
associated with VA development or participating in emissions trading). In examining the use of policy
instruments to address greenhouse gas emissions in industry in Norway, Torvanger (2002) suggests using
only one instrument per emission source.
The choice of policy instrument will be determined by what the main aim of the policy is and who it is
targeting. Taxes can fix marginal abatement costs and be relatively easily applied to small users. Taxes can
also be used to "cap" potential permit prices where there is uncertainty about abatement costs, e.g. in
Denmark where the government has explicitly used a "safety-valve" in setting the penalty at 40 DKK ($US
4.78)/ ton of CO2 in its trading scheme12. Emissions trading schemes can fix the environmental objective
(if absolute, rather than relative, caps are used) and can thus ensure that an absolute emissions target is met.
There may also be links between different types of trading schemes. For example, the possibility of
linkages between renewable energy certificate trading schemes and greenhouse gas emission trading
schemes is also envisioned in the literature, but could undermine the environmental integrity of GHG
trading systems (see Baron and Serret 2002).
The effectiveness of taxes or trading will depend on the shape of marginal abatement cost curves (O’Brien
and Vourc’h 2001). In addition, the number of market players will influence the selection of a tax versus a
trading scheme. A trading scheme will not succeed with few players as it may not have sufficient liquidity
whereas a taxation scheme can easily address a more limited number of players in an equitable manner
(O’Brien and Vourc’h 2001). Naturally, the popularity of a particular instrument with key stakeholders will
be an important influencing factor. However, compared to regulations, both taxes and trading can have
dynamic efficiency benefits by providing on-going incentives to innovate. Tax exemptions can also be
used as an incentive to participate either in a trading scheme, as in the UK.
As well as being applied in a complementary way, tradable permits and pollution taxes can also be applied
jointly. There are three potential motivations for the introduction of taxes in the presence of tradeable
permits:
x As a means to reduce compliance cost uncertainty;
x As a means to penalise non-compliance; and
x As a means to capture windfall rents from grandfathered permit allocation (OECD 2002d).
The choice between the application of taxes or emissions trading schemes will also depend on equity,
competitiveness concerns and leakage concerns. The application of a trading system targeting the same
sectors across a number of countries in the same region, as proposed in the European Directive on
emissions trading, could have fewer equity concerns relative to the application of a variety of taxes with
different tax rates being applied to different sectors in different countries.
12
The penalty does not always play this role: if a source is both subject to a financial penalty and the obligation to
offset emissions above target in the next commitment period, the financial penalty will not set a price cap, as the cost
of non-compliance is obviously more than the penalty. The US SO2 allowances programme follows this approach –
but prices have never come close to the penalty level.
26
Voluntary approaches are nearly always used in conjunction with other policy instruments, and can be a
useful complement to other instruments, especially in providing flexibility for entities (O’Brien and
Vourc’h 2001).
There are three ways in which voluntary approaches may be integrated with tradable permits:
x Where the adherence to tradable permit systems is voluntary;
x Where tradable permits are used as a means of allocating responsibilities within an

industry-wide negotiated agreement; and
x Where emission reductions agreed to under VAs are used as a means to allocate permits in a
grandfathered tradable permit scheme (OECD 2002d).
There are also links between energy efficiency trading and voluntary agreements in Italy (Malaman and
Pavan 2002), as well as between energy efficiency and renewable energy certificate trading and emissions
trading in the UK (Costyn 2002). In addition, some VAs, e.g. those in Germany, allow participants to use
offsets from ET, JI or CDM in meeting their agreed targets. Nevertheless, there can be some
inconsistencies between voluntary measures and emissions trading schemes (eg. see de Groot 2002). Some
questions have been raised about the effectiveness and potential overlap of emissions trading when other
energy savings and renewable energy targets are imposed (Honkatukia 2002).
Taxes and voluntary agreements can also be used together in either a complementary or evolutionary way.
For example, taxes are being used in Switzerland in association with voluntary approaches as an
instrument to apply in the case of non-performance: a tax may be imposed on fossil fuels from 2004 if the
voluntary measures are found to be insufficient (Government of Switzerland 2002).
Entering into a voluntary agreement can also lead to tax exemptions in some countries, e.g. Denmark
where there is a reduction in the energy tax rate from 2 to 0.4 ¼W&22 for entities participating in voluntary
agreement (Danish Energy Agency 2000). This exemption has to be repaid in the VA has not been met.
Differences in national circumstances will influence policy choice, though some stakeholders express a
clear preference for trading over taxes and regulations (eg. see Boyd 2002).
27
6. Workshop conclusions
The presentations and discussions held at the workshop led to some general conclusions. These are
outlined below.
x Industry would like clarity and foresight from government about the policy environment to
assist their response to the greenhouse issue. Some, but not all, businesses/industries are
taking proactive actions to reduce or limit GHG emissions, with the expectation that these
efforts will be rewarded when regulation is established. Where companies have implemented
voluntary approaches (VAs), there have been positive experiences and cultural changes in
organisations to increase efficiencies and generally “do better”.
x The policy mix used by governments to address industry emissions is changing in response to
lessons learned from experience in implementing policy instruments to date. Mitigation
policies becoming more common include VAs or “negotiated agreements” with both
“carrots” (i.e. subsidies for GHG abatement) and “sticks” (i.e. with targets, timeframes and
penalties), emissions trading, and taxes. Many countries have at least tried to implement VAs
of one sort of another, and there was considerable discussion at the workshop about the need
to go further and implement either more rigorous VAs or tougher measures. Those countries
with taxes will continue this path but may decrease the number of exemptions and increase
tax rates. Many countries are now looking at how to add emissions trading into the existing
policy mix, sometimes at the request of industry (United Kingdom, France).
x There is a range of policy responses in individual AIXG countries, which reflects a number of
factors. National circumstances and culture are an important determining factor in policy
choice and design. For example, many northern European countries have used similar
approaches (taxes combined with negotiated agreements and, more recently, trading).
Non-European countries (Australia, US, Canada, Japan) are focusing more on VAs, with little
or no implementation of taxes or trading (aside from SO2 and renewable certificate trading,
and other trading systems at the State level in Australia and the US. However, both Canada
and Japan are now actively looking at developing trading systems. National circumstances
can also affect the number of programmes as well as the complexity (or otherwise) of
monitoring how effective programmes are in reducing emissions.
x No matter what instrument is used, there is a strong need for monitoring and verification
(most workshop participants supported independent third party verification). There is still
generally very little data to support work on establishing baselines to determine what
reductions are beyond business-as-usual (BAU) activities. In some instances, NGOs and
industry have created partnerships where NGOs provide an objective and independent
evaluation of companies’ voluntary climate change objectives.
x As is the case for other sectors, there is still a long way to go in implementing effective
policy instruments to address emissions from industry. For example, where taxes have been
implemented, there have been many exemptions or reduced tax rates so that it is very difficult
to assess how effective these have been. Also, VAs have not always achieved the promised
reductions.
x Since countries use many policy instruments to reduce GHG emissions, it is often difficult to
assess the effectiveness of individual policy instruments. Although there is strong potential
for linking different policy types, there is not much detailed work being done on
28
linking/harmonisation of policy instruments in the policy mix. Several speakers indicated that
although trading is becoming more and more popular, there are potential incompatibilities
between different policy instruments (e.g. trading and taxes, or trading and VAs, if absolute
caps are not defined). Examples (e.g. UK) show that policy combinations can be worked out,
if this can bring broader industry participation without undermining environmental
effectiveness. The compatibility, cost and effectiveness of instruments will largely be
influenced by how individual policies are designed.
x Another point that was highlighted was the need to take a wider view: policies that focus on
product/behavioural change may be able to deliver more reductions than focusing on energy
efficiency. Further work on life-cycle emissions could be useful in this context, and in
determining at which stage in the life-cycle to place a carbon constraint.
x Energy/GHG-related costs are not the only important factors in considering competitiveness
issues, especially since competitiveness effects are context specific (national, industry,
product). Moreover, the impact of GHG reduction policies on competitiveness may change
over time e.g. if the international climate regime becomes more inclusive. A key for business
is to have the ability to adapt products and production processes to changing markets.
Providing businesses with foresight and clarity about the future directions and nature GHG
policy can assist this transition to lower GHG pathways. Policy can also be designed to
address competitiveness issues directly, e.g. through transitional compensation mechanisms
for sensitive sectors or industries.
29
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31
Government of Italy (GoI) (2002): Revisione delle linee guida per le politiche e misure nazionali di
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Reduce Greenhouse Gas Emissions in Industry – Successful Approaches and Lessons Learned’, 2-3
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33
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35
8. Glossary
Annex I Countries included in Annex I to the United Nations’ Framework Convention on

Climate Change
Annex II Industrialised countries included in Annex II to the United Nations’ Framework
Convention on Climate Change
BAU Business as usual
CDM Clean Development Mechanism
CH4 Methane
CO2 Carbon dioxide
EIT Countries with economies in transition
ET Emissions Trading
GHG Greenhouse gas
IEA International Energy Agency
JI Joint Implementation
N2O Nitrous oxide
NGO Non-governmental organisation
OECD Organisation for Economic Co-operation and Development
UNFCCC United Nations’ Framework Convention on Climate Change
VAs Voluntary approaches
36
Annex 1: WORKSHOP AGENDA
Policies to Reduce Greenhouse Gas Emissions in Industry – Successful

Approaches and Lessons Learned
Policies and Measures Workshop
2-3 December 2002
Building of the Representation of the Lands Brandenburg and

Mecklenburg-Vorpommern to the Federation
In den Ministergärten 3, 10117 Berlin
Workshop Chair: Doug Russell, Managing Director, Global Change Strategies International
Day 1: 2 December 2002
9:00 – 10:00 Welcome / Introduction to workshop

x Introduction to workshop by chair of Annex I Expert Group, Enno Harders
x Official opening by Margareta Wolf, Parliamentary Secretary of State, Ministry for
the Environment, Nature Conservation and Nuclear Safety, Germany
x Welcome by the State Secretary of the government of Mecklenburg-Vorpommern,
Germany, Thomas Freund
x Welcome by chair of workshop, Doug Russell
x Keynote presentation, Dave Findlay, DuPont
10:00 – 12:45 Identifying policy options and packages – which approaches have been adopted
and why?
Presentations from national government representatives
x Franz-Josef Schafhausen, Ministry for Environment, Nature Conservation and
Nuclear Safety, Germany
11:00 - 11:30
Break x Jim Sullivan, Environmental Protection Agency, United States
x Ivan Mojik, Ministry of the Environment, Slovakia
x Juha Honkatukia, Government Institute for Economic Research, Finland
x Olivia Hartridge, Department for Environment, Food and Rural Affairs, United
Kingdom
12:45 – 13:45 Lunch
37
AGENDA (continued)
Day 1: 2 December 2002 (continued)
13:45 – 15:30 Developing partnerships – implementation of various approaches to reduce

greenhouse gas emissions from industry
x Frits de Groot, Confederation of Netherlands Industry and Employers VNO-NCW
x Government/industry partnerships in Germany: experience and effectiveness,
Bernhard Hillebrand, Rhine-Westphalia Institute for Economic Research (RWI)
x The role of partnerships in reducing emissions from the aluminium industry, Eirik
Nordheim, European Aluminium Association (EAA)
x Developing meaningful voluntary agreements, Chris Boyd, Lafarge
x Approaches to reduce industry emissions - NGO commentary, Annie Petsonk,
Environmental Defense Fund
x The Keidanren and voluntary approaches, Meguri Aoyama, Keidanren, Japan
Business Federation
x Australia’s approach to reducing greenhouse gas emissions from industry, James
Shevlin, Australian Greenhouse Office
15:30 – 16:00 Break
16:00 – 17:45 Developing partnerships – implementation of various approaches to reduce
greenhouse gas emissions from industry (continued)
x Presentations continued and Discussion
Day 2: 3 December 2002
9:00 – 10:30 Competitiveness, leakage and other multinational issues

Presentations from industry, NGO/government discussants
x Dan Gagnier, Alcan
x Takao Aiba, Development Bank of Japan (DBJ)
x GHG reduction policies: what impact on competitiveness? Marlo Raynolds,
Pembina Institute
10:30 - 11:00 Break
11:00 - 12:30 Assessing environmental and economic performance
x Asbjørn Torvanger, Center for International Climate and Environmental Research -
Oslo (CICERO)
x Dian Phylipsen, Ecofys
x Nils-Axel Braathen, OECD
12:30 – 13:30 Lunch
38
AGENDA (continued)
Day 2: 3 December 2002 (continued)
13:30 – 15:30 Panel discussion – lessons learned

x Katia Simeonova, UNFCCC Secretariat
x Jan Corfee-Morlot, OECD
x Christophe Bourrillon, Pechiney
x Stephan Singer, World Wide Fund International (WWF)
x Philippe Tulkens, Belgian Federal Planning Bureau
x Tim Karlsson, Department of Industry, Canada
15:30 – 16:00 Break
16:00 – 17:00 Conclusions and wrap up
17:00 Workshop close
39
ANNEX 2: LIST OF PARTICIPANTS
Mr. Takao AIBA (Speaker) Mr. Thomas BERNHEIM

Deputy Director of Economic and Industrial Research Attaché
Department Federal Planning Bureau
Development Bank of Japan (DBJ) Task Force on Sustainable Development
1-9-1 Otemachi Chiyoda-ku Avenue des Arts 47-49
100-0004 Tokyo Brussels
Japan Belgium
Tel : +81 3 3244 1847 Tel : +32 2 507 74 80

Fax : +81 3 3245 0954 Fax : +32 2 507 74 86
Email : [email protected] Email : [email protected]
Mr. Meguri AOYAMA (Speaker) Mr. Swen BODE

Manager, Environment Group Hamburg Institute of International Economics
Keidanren (Japan Business Federation) Neuer Jungfernstieg 21
Environment, Science and Technology Bureau 20347 Hamburg
1-9-4, Otemachi, Chiyoda-ku Germany
100-8188 Tokyo
Japan Tel : +49 40 42 834 356
Fax : +49 40 42 834 451
Tel : +81 3 5204 1579 Email : [email protected]
Fax : +81 3 5255 6258
Email : [email protected]
Mr. Rossen ASSENOV Mr. Bert BORST

Environmental Expert Ministry of Housing, Spatial Planning and the
Energy Institute JSC Environment
F. Joliot Curie St. 20 8, Rijnstraat, P.O. Box 30945
1113 Sofia 2500 GX The Hague
Bulgaria Netherlands
Tel : +359 2 639 94908 Tel : +31 70 339 4423

Fax : +359 2 963 4038 Fax : +31 70 339 1310
Mr. Klaus BECKER Mr. Christophe BOURILLON (Panel)

Federal Environmental Agency Director Energy and Environment
Bismarckplatz 1 Pechiney
14193 Berlin 7 Place du Chancelier Adenauer
Germany 75218 Paris Cedex 16
France
Tel : +49 30 8903 2635
Fax : +49 30 8903 2906 Tel : +33 1 56 28 27 01
Email : [email protected] Fax : +33 1 56 28 33 57
40
Mr. Christopher BOYD (Speaker) Mr. Franco DEL MANSO

Chairman of the BIAC Environment Committee Unione Petrolifera
LAFARGE Technical and Environmental
Senior Vice-President Environment and Public Affairs Via Giorgione 129
61 rue des Belles Feuilles, B.P. 40 00147 Roma
Paris Cedex 16 Italy
France
Tel : +39 06 54 23 65 42
Tel : +33 1 44 34 11 68 Fax : +39 06 59602925
Fax : +33 1 44 34 12 07 Email : [email protected]
Mr. Terry CARRINGTON (Panel) Mr. Dieter DREXEL

Head of Climate Change Section Federation of Austrian Industry
Department of Trade and Industry Schwarzenbergplatz 4
Sustainable Development Directorate 1031 Vienna
151 Buckingham Palace Road Austria
SW1W 9SS London
United Kingdom Tel : +43 1 71135 2394
Fax : +43 1 71135 2920
Fax : +44 20 7215 6846
Mr. Frits DE GROOT (Speaker) Mr. Matthias DUWE

Bureau for the Environment BMRO Policy Officer
Confederation of Netherlands Industry and Employers Climate Action Network - Europe
VNO-NCW 48 rue de la Charité
Energy and Climate Change 1210 Brussels
Postbus 93002 Belgium
2509 AA The Hague
Netherlands Tel : +32 2 229 5223
Fax : +32 2 229 5229
Fax : +31 70 349 0360
Ms. Kerstin DELLER Mr. Klaus ECKHARDT

Federal Ministry for the Environment, Nature Ministry of Finance
Conservation and Nuclear Safety Wilhelmstr. 97
Z II 6 11016 Berlin
Alexanderplatz 6 Germany
10178 Berlin
Germany Tel : +49 30 2242 1861
Tel : +49 1888 305 2367 Fax : +49 30 2242 881861
Fax : +49 1888 305 2349 Email : [email protected]
41
Mr. Shunichi ENOMOTO Ms. Sonja FRENZEL

First Secretary FutureCamp Gmbh
Embassy of Japan in Germany Chiemgaustr. 116
Economic Division 81549 Munich
Hiroshimastr. 6 Germany
10985 Berlin
Germany Tel : +49 89 68008 456
Fax : +49 89 68008 333
Fax : +49 30 210 94221
Ms. Erja FAGERLUND Mr. Jean-Christophe FÜEG

Senior Adviser Senior Energy Expert
Ministry of Trade and Industry Swiss Federal Office of Energy
Energy Department 3003 Berne
Aleksanterinkatu 4 Switzerland
00170 Helsinki
Finland Tel : +41 31 323 12 50
Fax : +41 31 323 25 00
Fax : +358 9 160 62695
Mr. Tomaz FATUR Mr. David FUSS

Head of Energy Efficiency Centre Policy Analyst
Jozef Stefan Institute - Energy Efficiency Centre Department of Natural Resources
Jamova 39, SI 580 Booth Street
1000 Ljubljana K1A 0E4 Ottawa
Slovenia Canada
Tel : +386 1 5885 278 Tel : +1 613 996 3567

Fax : +386 1 561 2335 Fax : +1 613 947 6799
Mr. Dave FINDLAY (Speaker) Mr. Daniel GAGNIER (Speaker)

DuPont Canada Inc. Senior Vice President, Corporate and External Affairs
P.O. Box 2200, Streetsville ALCAN INC.
L5M 2H3 Mississauga, Ontario 1188, Sherbrooke Street West
Canada H3A 3G2 Montreal
Canada
Tel : +1 905 821 5934
Fax : +1 905 821-5653 Tel : +1 514 848 8118
Email : [email protected] Fax : +1 514 848 1494
42
Ms. Tetyana GORDIYENKO Mr. Enno HARDERS (Speaker)

Senior Officer Deputy Head of Division
Ministry of Environment and Natural Resources Federal Ministry for the Environment, Nature
Hydrometeorological Service and Monitoring Conservation and Nuclear Safety
Department Alexanderplatz 6
6, Zolotovoritska Street 10055 Berlin
01601 Kyiv 34 Germany
Ukraine
Tel : +49 1888 305 2315
Tel : +380 44 221 9368 Fax : +49 1888 305 3337
Ms. Visnja GRGASOVIC Mr. Udo HARTMANN

Adviser Senior Manager, Environmental Protection
Ministry for Environment Protection and Physical Daimler Chrysler AG
Planning HPC 0512
Atmosphere Protection, Waste Management and Soil 70546 Stuttgart
Protection Department Germany
Ulica grada Vukovara 78
10 000 Zagreb Tel : +49 711 17 92934
Croatia Fax : +49 711 17 94211
Tel : +385 1 610 6557
Fax : +385 1 610 6386
Ms. Regine GÜNTHER Ms. Olivia HARTRIDGE (Speaker)

WWF Germany Department for Environment, Food and Rural Affairs
Rebstöckerstr. 55 (DEFRA)
60326 Frankfurt 5/F5 Ashdown House 123 Victoria Street
Germany SW1E 6DE London
United Kingdom
Tel : +49 69 79144 177
Fax : +49 69 79144 231 Tel : +44 20 7944 5922
Mr. Halvard Andreas HANSEN Mr. Jan Erik HEDEMARK

Adviser Higher Executive Officer
Ministry of the Environment Ministry of Finance
P.O. Box 8013 Dep. P.O. Box 8008 Dep.
0030 Oslo 0030 Oslo
Norway Norway
Tel : +47 22 24 58 09 Tel : +47 22 24 43 13

Fax : +47 22 24 95 63 Fax : +47 22 24 95 05
43
Mr. Joachim HEIN Mr. Klaus-R. KABELITZ

Federation of German Industries Head of Economic Research, Energy Industry and
Breite Strasse 29 Environment Policy Department
10178 Berlin Ruhrgas AG
Germany Huttropstr. 60
45138 Essen
Tel : +49 30 2028 1555 Germany
Tel : +49 201 1843440
Fax : +49 201 1843824
Mr. Bernhard HILLEBRAND (Speaker) Mr. Tim KARLSSON

Rhine-Westphalia Institute for Economic Research Senior Policy Advisor
(RWI) Department of Industry
Hohenzollernstraße 1-3 235 Queen Street
45128 Essen Ottawa
Germany Canada
Tel : +49 201 81 49 233 Tel : +1 613 941 2249

Mr. Juha HONKATUKIA (Speaker) Mr. Ulrich KELBER

Government Institute for Economic Research (VATT) Member of Parliament
Hämeentie 3, P.O Box 269 Bundestag
00531 Helsinki Platz der Republik 1 (ROK)
Finland 11011 Berlin
Germany
Tel : +49 30 227 70027
Fax : +49 30 227 76008
Mr. Gary JAMES Mr. Tetsuya KIMURA

Manager - Industry Impacts and Bilateral Arrangements First Secretary
Department of Industry Tourism and Resources Embassy of Japan in Germany
Energy and Environment Division Hiroshimastr. 6
51 Allara Street, GPO Box 9839 10785 Berlin
Act 2601 Canberra Germany
Australia
Tel : +49 30 210 94400
Tel : +61 2 6213 7987 Fax : +49 30 210 94221
44
Mr. Herbert KUBE Ms. Maria Luisa MERCHAN SALA

Federal Ministry of Economics and Labour Technical Assistant
Scharnhorststr. 34-37 Ministry of the Environment
10115 Berlin Plaza San Juan de la Cruz, s/n
Germany Madrid
Spain
Tel : +49 30 2014 6175
Fax : +49 30 2014 7089 Tel : +34 91 597 60 15
Email : [email protected] Fax : +34 91 597 59 30
Mr. Philippe MEUNIER

Mr. Christoph KÜHLEIS Mission interministérielle de l'effet de serre
Federal Agency for Nature Conservation Premier Ministre
Bismarckplatz 1 35, rue Saint Dominique
14193 Berlin 75007 Paris
Germany France
Tel : +49 30 8903 2272 Tel : +33 1 42 75 57 12

Fax : +49 30 8903 2906 Fax : +33 1 47 53 76 34
Mr. Jürgen LANDGREBE Mr. Yuji MIZUNO

Federal Agency for Nature Conservation Senior Consultant, Global Environment Group Manager
Bismarckplatz 1 Nomura Research Institute Ltd.
14193 Berlin Land and Environment System Consulting Department
Germany Shin Otemachi Building 2-2-1, Otemachi,
Chiyoda-ku
Tel : +49 30 8903 2142 100-0004 Tokyo
Fax : +49 30 8903 2906 Japan
Tel : +81 3 5203 0769
Fax : +81 3 5203 0783
Mr. Bodo LINSCHEIDT Mr. Ivan MOJIK (Speaker)

Federal Ministry for the Environment, Nature Director, Air Protection Department
Conservation and Nuclear Safety Ministry of the Environment
Alexanderplatz 6 Nám L. Stúra 1
10178 Berlin 812 35 Bratislava
Germany Slovak Republic
Tel : +421 2 5956 2220
Tel : +49 30 28550 2359 Fax : +421 2 5956 2662
45
Mr. Mark MOLNAR

Researcher Mr. Eirik NORDHEIM (Speaker)
Systemexpert Ltd. Director EHS
Matyashegyi 7/b European Aluminium Association (EAA)
1037 Budapest Avenue de Broqueville 12
Hungary Brussels
Belgium
Tel : +36 1 250 5078
Fax : +36 1 250 1713 Tel : +32 2 775 6317
Ms. Margaret MONAGHAN Ms. Anna PACZOSA

Principal Officer Senior Inspector
Department of Enterprise, Trade and Employment Ministry of the Environment
Kildare Street Department of Investments and Technological
Dublin 2 Development
Ireland Wawelska 52/54
Warsaw
Tel : +353 1 631 2227 Poland
Fax : +353 1 662 2523
Email : [email protected] Tel : +48 22 579 26 17
Fax : +48 22 579 22 17
Mr. Lars MÜLLER Ms. Annie PETSONK (Speaker)

Detached National Expert International Counsel
Commission of the European Communities Environmental Defense Fund
DG Environment 1875 Connecticut Ave, NW. 10th Floor, Suite 1016
BU9 5/163, 200 rue de la Loi 20009 Washington
1049 Brussels United States
Belgium
Tel : +1 202 387 3500
Tel : +32 2 299 0565 Fax : +1 202 234 6049
Mr. Patrick NOLLET Mr. Antonio PFLÜGER

Délégué Général Head of Division
Entreprises pour l'Environnement Federal Ministry of Economics and Technology
41, rue des Trois Fontanot Scharnhorststr. 34-37
92024 Nanterre Cedex 10115 Berlin
France Germany
Tel : +33 1 55 69 13 32 Tel : +49 30 2014 7465

Fax : +33 1 55 69 13 30 Fax : +49 30 2014 7089
46
Mrs. Dian PHYLIPSEN (Speaker) Mr. Sven RUDOLPH

Manager, International Climate Consultants BUND / FOE Germany
Ecofys bv Buchenweg 10
P.O. Box 8408 34260 Kaufungen
3503 RK Utrecht Germany
Netherlands
Tel : +49 5605 3640
Tel : +31 30 280 8440 Fax : +49 5605 7801
Fax : +31 30 280 83 01 Email : [email protected]
Ms. Katrin POPKEN Mr. Douglas RUSSELL (Wokshop Chair)

Stahl Berlin Managing Director
Reinhardtstr. 27c Global Change Strategies International Inc. (GCSI)
10117 Berlin 150 Isabella Street, Suite 350
Germany K1S 1V7 Ottawa
Canada
Tel : +49 30 283 876 61
Fax : +49 30 283 876 62 Tel : +1 613 232 7979
Ms. Lynn PRICE Ms. Carmen SÁNCHEZ SÁNZ

Scientist Directora de Programa de Educación
Ernest Orlando Lawrence Berkeley National Laboratory Ministerio de Medio Ambiente
Energy Analysis Department Plaza San Juan de la Cruz, s/n.
1 Cyclotron Road, MS 90-4000 28071 Madrid
94720 Berkeley Spain
United States
Tel : +34 91 597 68 51
Tel : +1 510 486 6519 Fax : +34 91 597 59 56
Mr. Marlo RAYNOLDS (Speaker) Mr. Franz Josef SCHAFHAUSEN (Speaker)

Director Head of Division Z II 6
Pembina Institute Federal Ministry for Environment, Nature Conservation
Eco-Solutions Group and Nuclear Safety
Suite 515/517, 604, 1st SW Alexanderplatz 6
T2P 1M7 Calgary 10178 Berlin
Canada Germany
Tel : +1 403 269 3344 (Ext. 113) Tel : +49 1888 305 2350
Fax : +1 403 269 3377 Fax : +49 1888 305 2349
47
Mr. Udo SCHOELE Ms. Elena SIDASH

Federal Ministry of Economics and Labour First Secretary
Scharnhorststr. 34-37 Ministry of Foreign Affairs
10115 Berlin 37a K. Marks Str.
Germany 220030 Minsk
Belarus
Tel : +49 30 2014 7350
Fax : +49 30 2014 7089 Tel : +375 172 22 26 59
Email : [email protected] Fax : +375 172 22 26 73
Mr. Robert SCOTT Ms. Katia SIMEONOVA (Panel)

Foreign Affairs Officer Programme Officer
US Department of State UN FCCC Secretariat
20250 Washington Annex I Implementation sub-programme
United States P.O. Box 260 124
53153 Bonn
Tel : +1 202 647 4688 Germany
Fax : +1 202 647 0191
Email : [email protected] Tel : +49 228 815 1411
Fax : +49 228 815 1999
Ms. Lynn SHEPPARD Mr. Stephan SINGER (Panel)

First Secretary, Environment Head of European Climate and Energy Policy Unit
British Embassy, Berlin WWF European Policy Office
Wilhelmstrasse 70 Avenue de Tervuren 36 -bte 12
10117 Berlin 1040 Brussels
Germany Belgium
Tel : +49 30 204 57341 Tel : +32 2 743 8817

Fax : +49 30 204 57576 Fax : +32 2 743 8819
Mr. James SHEVLIN (Speaker) Mr. Kim Gai SOH

Executive Manager Executive Secretary
Australian Greenhouse Office International Fertilizer Industry Association (IFA)
Partnerships and Market Policies Group 28 rue Marbeuf
GPO Box 621 75008 Paris
Canberra ACT 2601 France
Australia
Tel : 01 53 93 05 26
Tel : +61 2 6274 1773 Fax : 01 53 93 05 47
48
Mr. James SULLIVAN (Speaker) Mr. Tom VANT

US EPA Executive Secretary, Area Canada
Office of Atmospheric Programs Syncrude Canada Ltd.
1200 Pennsylvania Avenue, N.W. (MC 6202J) 9421 17th Avenue
20460 Washington T6N 1H4 Edmonton
United States Canada
Tel : +1 202 564 2362 Tel : +1 780 970 6959

Fax : +1 202 565 2134 Fax : +1 780 970 6805
Mr. Asbjørn TORVANGER (Speaker) Mr. Giuseppe VATINNO

Senior Research Fellow Ministry for the Environment and Territory
Center for International Climate and Environmental Department for Global Environmental International and
Research - Oslo (CICERO) Regional Conventions
P.B. 1129 Blindern Via Cristoforo Colombo 44
0318 Oslo 00147 Rome
Norway Italy
Tel : +47 2285 8772 Tel : +39 06 57 22 8167

Fax : +47 2285 8751 Fax : +39 06 57 22 8173
Mr. Philippe TULKENS (Panel) Ms. Jutta VOLMER

Expert Greenergy Concept Gmbh
Belgian Federal Planning Bureau Sternstrasse 5
Avenue des Arts 47-49 13359 Berlin
1000 Bruxelles Germany
Belgium
Tel : +49 30 499 11504
Tel : +32 2 507 7367 Fax : +49 30 499 11506
Mr. Paul VAN SLOBBE Mr. Dirk WEINREICH

Ministry of Economic Affairs Federal Ministry for the Environment, Nature
P.O. Box 20101 (ALP-C/434) Conservation and Nuclear Safety
2500 EC The Hague Alexanderplatz 6
Netherlands 10178 Berlin
Germany
Tel : +31 70 379 7388
Fax : +31 70 379 6879 Tel : +49 1888 305 4509
49
Mr. Bärbel WESTERMANN

Federal Agency for Nature Conservation
Bismarckplatz 1
14193 Berlin
Germany
Tel : +49 30 8903 2338

Fax : +49 30 8903 2906
Mr. Klaus WILLNOW

Siemens AG
Contact Bureau Berlin
Charlottenstr. 57
Berlin
Germany
Tel : +49 30 3863 2073
Fax : +49 30 3863 2061
Mrs. Marie ZAHRADNIKOVA

State Expert
Ministry of the Environment
Air Protection Department
Vrsovicka 65
100 10 Prague 10
Czech Republic
Tel : +420 2 671 22941

Fax : +420 2 673 10166
50
OECD Secretariat
OECD Environment Directorate Mrs. Ramona HERING
2, rue André Pascal Public Affairs Assistant
75775 Paris Cedex 16 OECD Berlin Centre
France Albrechtstrasse 9, 3. OG
Fax : +33 1 45 24 78 76 10117 Berlin-Mitte
Germany
Mr. Nils Axel BRAATHEN (Speaker) Tel : +49 30 288 8353
Principal Administrator Fax : +49 30 288 83545
Tel : +33 1 45 24 76 97 Email : [email protected]
Mr. Stephen BYGRAVE Mr. Heino VON MEYER

Administrator Head of Centre
Tel : +33 1 45 24 14 86 OECD Berlin Centre
Email : [email protected] Albrechtstrasse 9, 3. OG
10117 Berlin-Mitte
Mrs. Jan CORFEE-MORLOT (Panel) Germany
Principal Administrator Tel : +49 30 288 8353
Tel : +33 1 45 24 79 24 Fax : +49 30 288 83545
Mrs. Jane ELLIS IEA Secretariat

Administrator
Tel : +33 1 45 24 15 98 Mr. Richard BARON
Email : [email protected] Principal Administrator
Energy and Environment Division
Mrs. Lyndia LEVASSEUR-TOMASSI 9, rue de la Fédération
Secretariat 75739 Paris Cedex 15
Tel : +33 1 45 24 76 93 France
Email : [email protected] Tel : +33 1 40 57 67 24
Fax : +33 1 40 57 67 39
AgE Secretariat
Ms. Juliane MEINEL Mr. Clemens STEINER
Arbeitsgruppe Emissionshandel zur Bekämpfung des Arbeitsgruppe Emissionshandel zur Bekämpfung des
Treibhauseffektes Treibhauseffektes
German Project Emissions Trading to Combat Climate German Project Emissions Trading to Combat Climate
Change Change
Karl-Liebknecht Str. 34 Karl-Liebknecht Str. 34
10178 Berlin 10178 Berlin
Germany Germany
Tel : +49 30 5150 3383 Tel : +49 30 5150 3383
Fax : +49 30 5150 3386 Fax : +49 30 5150 3386
51

Policies To Reduce Greenhouse Gas Emissions in Industry - Successful Approaches and Lessons Learned: Workshop Report

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COM/ENV/EPOC/IEA/SLT(2003)2

OECD ENVIRONMENT DIRECTORATE

Policies to Reduce Greenhouse Gas Emissions in Industry -

OECD and IEA Information Paper

Organisation for Economic Co-operation and Development 2003

Questions and comments should be sent to:

Stephen Bygrave Jane Ellis

EXECUTIVE SUMMARY .......................................................................................................................... 5

2. INDUSTRY EMISSION AND POLICY TRENDS ........................................................................... 8

ANNEX 1: WORKSHOP AGENDA......................................................................................................... 37

ANNEX 2: LIST OF PARTICIPANTS .................................................................................................... 40

Figure 3: Shares of aggregated GHG emissions in 2000 by sector ................................................................ 8

The workshop had the following objectives:

x Examine issues relating to international co-operation and sectoral competitiveness;

2. Industry emission and policy trends

Figure 1: Shares of aggregated GHG emissions in 2000 by sector

Waste Intl. bunkers Energy

Source: Adapted from UNFCCC 2002a.

3.1 Environmental effectiveness

A requirement to determining the environmental effectiveness of a policy is to have both a credible

3.2 Economic efficiency

3.3 Other measures of success

Source: UNFCCC (2002c)

4.1 Developing policy packages

4.2 Competitiveness issues

5. Specific policy instruments and experience to date in

5.1.1 Carbon/energy taxes

Table 2: Energy/CO2 taxes and their use in industry in selected countries

5.1.2 Taxes on other gases

5.2 Voluntary approaches

5.2.1 Voluntary approaches involving government and industry

5.2.2 Other partnerships

5.2.3 Experience to date in VA design and effectiveness

However, it is difficult to assess the environmental effectiveness of VAs, particularly if a business-as-usual

Table 3: Status of Domestic Emissions Trading Schemes

Slovakia Both mandatory and voluntary To be determined.

Pilot phase 2005 – 2007.

Source: Baron and Bygrave (2002), Kitamori (2002).

5.3.1 Greenhouse gas emissions trading

5.3.2 Other trading instruments

Table 4: Summary of Tradable Renewable Energy Certificate Schemes

5.4 Interaction of instruments in the policy mix and complementarities

x As a means to reduce compliance cost uncertainty;

x As a means to penalise non-compliance; and

x Where the adherence to tradable permit systems is voluntary;

x Where tradable permits are used as a means of allocating responsibilities within an

Australian Greenhouse Office (AGO) (2002): Greenhouse challenge, (see

Balasini, Marcello (2002): Personal communication 12.05.2003

Government of Canada (2001): Canada’s Third National Report on Climate Change.

Government of Norway (2002): Status of Emissions Trading in Norway, Input to IEA/IETA/EPRI

Government of Switzerland (2002): Emissions Trading in Switzerland, Input to IEA/IETA/EPRI workshop

International Aluminium Institute (IAI) (2002): Perfluorocarbon emissions reduction programme

IEA (2002a): CO2 emissions from fuel combustion 1971-2000, Paris.

IEA (2002b): Energy Balances of OECD Countries 1971-2000, Paris.

IEA (2002c): Energy Balances of Non-OECD Countries 1971-2000, Paris.

Johnstone N. (2001): “The impacts of alternative permit allocation methods on international

Mission Interministérielle de l’Effet de Serre (MIES) (2001): Troisième Communication Nationale à la

Petsonk, A. (2002): “Voluntary GHG Partnerships: Developing Experience In Reducing Emissions,”