Addressing Opportunities and Challenges of a Sectoral Approach to the Clean Development Mechanism

Grave concerns with the Clean Development Mechanism (CDM) have increasingly surfaced in the international climate policy arena. The sectoral approach described in this paper may be a way to address some of the shortcomings of this Kyoto mechanism. The paper examines the conflicting interpretations of such an approach and outlines issues that need to be resolved: deciding on the role of the actors involved, defining the sector and its baseline, ensuring additionality and tackling procedural issues. The sectoral approach can enable countries to guide their structural development but it also opens up a gap between public and private investment that needs to be addressed before conflicts arise. Sectoral CDM activities may be able to lower transaction costs for projects that otherwise cannot compete in the CDM market and might even pave the way to sectoral greenhouse gas limitation targets in developing countries by establishing the necessary infrastructure for data collection.