The aluminium sector places an emphasis on recycling and scrap utilisation in the methodologies of the existing voluntary initiatives that could deliver emission savings. There will also be an impact on emissions from final consumer products. For example, making cars and trains more lightweight would lead to significant emission reductions. The Chinese iron and steel sector has suggested incentivising the creation of an integrated steel plant at the centre of an eco-industrial chain because, depending on its vertical integration, a single company may have a significant impact on emissions elsewhere along the chain. Upstream activities involving fuel use and transport for intermediate products could be accounted for as well. For example, shifting from coal to natural gas for on-site fuel could result in a higher carbon footprint for upstream operations, especially if liquefied natural gas is used.

### 3. How to deal with indirect emissions

One of the key issues is if electricity is used instead of combusting fuel in certain sectors, e.g. aluminium, or certain processes, e.g. those in the iron and steel sector. There may be a guiding principle that could be applied: while power generators are able to control the fuel and GHG mix, the producers are able to control the amount of power they use. This has implications for choosing energy use rather than GHG emissions as a performance indicator for certain sectoral benchmarks. In this respect, it is necessary to decide how to reward on-site electricity co-generation, such as combined heat and power or even renewable sources. There have been some precautionary efforts to avoid including indirect and off-site emissions and thus to prevent double counting.

The energy input for a single product may differ according to the technology and corresponding process used, such as wet versus dry for cement clinker, but also for electricity, where sometimes several options exist for each fuel source. Especially in the iron and steel sector, it is important to draw statistical and system boundaries around processes for precision, but their variance by process complicates benchmarking. Differentiating benchmarks by process may discourage shifts towards more efficient technologies. Another option is to concentrate on technology benchmarks.

### 4. Determining which installations or sectors are to be compared

Comparisons of installations or a sector may be regional, national or international. Existing industry-led initiatives centre on the international level. The best performers would be rewarded regionally or nationally, but comparison at these levels may not mitigate concerns about international competition or distortions to the market. At the international and national levels, the least-developed countries (LDCs) and very small producers could be completely excluded from comparison, as investments in state-of-the-art technology may make no economic sense with a negligent impact on their emissions.

Consequently, sectoral characterisation, including boundaries and configuration, has important implications for the potential benefits of sectoral approaches. Poor choices for boundaries and metrics would limit the potential benefits by overlooking attractive opportunities for mitigation, failing to count in certain positive actions, rewarding unproductive activities or creating ‘gaming’ opportunities, thereby undermining confidence. Sector characterisation should be determined in a manner that promotes consistency, avoids double counting, reflects real plant conditions, is consistent with measurement protocols and data collection capabilities, and can be reproduced and accepted by all parties.

Consideration of the complexity involved in boundary setting and the feasibility of operation would be preconditions for allowing the future inclusion of a relevant sector in a cap-and-trade system. Boundary setting needs to address the complexity as described in the above criteria, capturing some, if not all of the criteria. It may be worthwhile keeping this practice simple for