Unlike transnational initiatives, sectoral crediting or sectoral trading is to be implemented domestically in developing countries. Proponents of these approaches put more emphasis on the electricity and heating sector than those of industry-led transnational initiatives.

Sector-specific benchmarks form the potentially strongest link between the European Union's Emissions Trading Scheme (EU ETS) and sectoral approaches. First, sectoral benchmarks can be used for setting caps. In a subsequent phase (2013–20), the European Commission will be in charge of setting an EU-wide cap. The cap will decrease annually by a linear factor compared with the average annual quantity of allowances issued by member states. Second, sectoral benchmarks can be used for free allocation. The benchmarks will be set Community-wide ex ante, and calculated for products. Third, sectoral benchmarks can become a catalyst for linking carbon markets. One option is to link carbon markets through agreements to provide for the recognition of allowances between the EU ETS and 'compatible mandatory' emissions trading schemes with absolute caps in any non-EU country or in sub-federal or regional entities. Another option is to link carbon markets through non-binding arrangements to provide for administrative and technical coordination in relation to allowances in the EU ETS or other 'mandatory' emissions trading schemes with absolute caps.

The EU calls for the creation of a carbon market across the OECD through linkages by 2015, which will be extended to include major emerging economies by 2020. As a step towards developing the global carbon market, it envisages a gradual phase-out of the project-based CDM for advanced developing countries in a move towards a sectoral crediting mechanism. This move would pave the way for introducing and developing cap-and-trade schemes in these countries.

There would be at least three ways to strengthen the effectiveness of sectoral approaches: through the choice of performance metrics, reporting and compliance. The possible discrepancy between indicators for energy use and greenhouse gas (GHG) emissions is an example of the problems with performance metrics. One approach is to use a composite index system. A rough framework, possibly adopting the index approach and based on what would be possible to measure, could be negotiated. Measurability would be essential for making sectoral approaches operational as part of a post-2012 framework and is likely to require a common scientific scale of measurement, including performance indicators and boundaries. For this purpose, the process underway through the UN Framework Convention on Climate Change (UNFCCC) could be complemented by the work of the International Organisation for Standardization/International Electrotechnical Commission and the International Energy Agency. An example of a functioning compliance system can be found in the EU ETS; compliance systems are much weaker when based on an effort-sharing decision that requires member states to reduce emissions from non-ETS sectors.

Some preliminary thinking points to the possibility of an increase in decentralisation and flexibility in the post-2012 architecture. Decentralised or 'bottom-up' approaches would rely heavily on the correct conduct of measurement, reporting and verification of mitigation actions in developing countries to ensure that the resources provided by developed countries are spent effectively. Sectoral approaches could work together with the targets-and-timetables approach or with a pledge-and-review model. Otherwise, an 'action-based' strategy, which covers sectoral approaches, can be regarded as a way of integrating targets and timetables, as they are agreed, with consistent and comparable policies and measures. Since the UNFCCC is a framework agreement with a longer time horizon as well as a wider coverage of participating countries, its scope allows a broader range of issues, including mitigation tools, under a single umbrella. Hence, sectoral approaches could have a better chance of developing into part of the post-2012 framework under the UNFCCC than under the Kyoto Protocol. There will be a hybrid range of agreements and mechanisms to make sectoral approaches operational. The simplest option is to have only intergovernmental agreements, such as a reporting protocol, as an extension of the UNFCCC requirements. The other option is to have both intergovernmental agreements and