each production process of the sector or sub-sector concerned. The starting point for setting ex ante (sub-)sectoral benchmarks, according to the agreement, will be the average performance of the 10% most efficient installations in a sector or sub-sector in the Community in the years 2007–08.

Third, sectoral benchmarks can become a catalyst for linking carbon markets. Art. 25 of the Directive suggests two possibilities for agreements in general and non-binding arrangements. $ ^{18} $ One option is to link emissions trading schemes through agreements to provide for the recognition of allowances between the EU ETS and ‘compatible mandatory’ GHG emissions trading schemes with absolute emissions caps established in any non-EU country or in sub-federal or regional entities. Another option is linking through non-binding arrangements with these partners to provide for administrative and technical coordination in relation to allowances in the EU ETS or other ‘mandatory’ GHG emissions trading schemes with absolute emissions caps. Driven by an ambition to develop a global carbon market through linking the EU ETS with other domestic cap-and-trade schemes, the EU launched the International Carbon Action Partnership together with other countries preparing for emissions trading schemes.

The EU has called for the creation of a carbon market across the OECD through linking by 2015, and its expansion to include major emerging economies by 2020 with a view to building a global carbon market. Section 4.4 of this paper looks at recent developments in US legislation for a federal cap-and-trade scheme, and the launch of a regional cap-and-trade scheme, known as the Regional Greenhouse Gas Initiative (RGGI). While linking will likely require adjustments in design options among different schemes, it could facilitate sectoral cooperation across countries, especially a move to develop global sectoral benchmarks.

#### 4.2.3 The EU’s call for a sectoral crediting mechanism

In association with the Copenhagen Accord, the EU reiterated its emissions reduction target of a 20% reduction from 1990 levels by 2020 and its conditional offer to move to 30%, provided that other developed countries commit themselves to comparable emission reductions and that developing countries contribute adequately according to their responsibilities and respective capabilities. The EU is currently examining the possibility of adjusting the 2020 GHG emissions target from 20% to 30% reductions, which would alter the assumption of the amended ETS Directive and the effort-sharing decision $ ^{19} $ regarding use of CERs/ERUs in the third phase. Ahead of the June European Council meeting, the European Commission has been asked to outline a pathway for the EU’s transition to a low carbon economy by 2050, develop an analysis of milestones on the pathway to 2050 and prepare an analysis of policies that would be needed to achieve a 30% emissions reduction. The Commission will also present its analysis on the state of energy-intensive industries at risk of carbon leakage with regard to their access to free allocation for the ETS in the third phase (European Commission, 2010b).

As a key element of the future agreement, the EU stresses the role of a strengthened global carbon market and aims at developing an OECD-wide market by 2015 and beyond by 2020. One of the promising approaches for the development of a global carbon market would be a new sectoral crediting mechanism that takes into account the different capabilities of developing countries (see Figure 2 and European Commission, 2009a, 2009b and 2010b).