Policy Options for Encouraging Energy Efficiency Best Practices in Shandong Province’s Cement Industry

The sectoral approach is a mechanism to organize "action by key product producers in a specific industry sector and their host governments to address the greenhouse gas emissions from their products and processes" (WBCSD, 2009). This research analyzes the concept of a sectoral "no-lose" target under which tradable emission reduction units would be issued for emission reductions beyond the agreed sector baseline. However, no penalty would apply in case the country failed to meet the target (therefore called"no-lose" target).

The process intends to strengthen government and national ownership over public sector policy and enhance the coherence among policy, spending and results (European Commission, 2007). It is also a recognized mechanism that works in conjunction with other policies and processes as elements of a comprehensive post-2012 climate framework.

This research intends to explore possible design options for a sectoral approach in the cement sector in Shandong Province and to consider its respective advantages and disadvantages for future application.An effort has been made in this research to gather and analyze data that will provide a transparent and robust basis for development of a Business-As-Usual (BAU) scenario, maximum technology potential scenario, and ultimately a sector crediting baseline. Surveys among cement companies and discussions with stakeholders were also conducted in order to better understand the industry and local needs related to the sectoral approach.

The research analyzes data from the cement sector in Shandong province and uses policy and technology assumptions to estimate both the BAU and maximum reduction scenarios. Figure 1 illustrates the scenarios. Once these scenarios are determined, a sectoral crediting baseline can be negotiated in the range of 526.2 and 598.2 kgCO₂/t of cement by 2020.

With the recent policy signals from the National Development and Reform Commission (NDRC) on the design of cap-and-trade systems, less progress could be made by local governments in exploring specific design options for a sectoral approach. However, these governments used this research to inform their thinking and their own research into policy design options for pilot cap-and-trade systems. The most concrete example of this is the use of the research results by SECO in developing its energy saving cap-and-trade pilot program in Yantai.

This research concludes that a sectoral approach could be implemented in Shandong's cement sector.However, further work is needed to fine-tune the specific crediting arrangements, MRV and institutional mechanisms, as well as defining the crediting baseline under such a sectoral approach. This research has laid out the options to inform such a discussion with an international trading partner towards establishing an actual sectoral approach project based on the sector no-lose concept in the cement sector in Shandong.