economies (Mexico and China), and the US (which has not ratified the Kyoto Protocol). Section 5 addresses the question of how to strengthen the effectiveness of sectoral approaches. Section 6 briefly discusses the challenge of how to develop sectoral approaches as part of the post-2012 framework. Section 7 contains some concluding remarks.

### 2. Industry-led transnational approaches

Industry-led transnational initiatives are particularly important in light of their participation, momentum or public exposure. This section addresses challenges to transnational approaches, especially related to boundary setting, data collection and best practices in benchmarking. In this context, this paper mainly looks at initiatives developed by industry and also touches upon an example of a public–private partnership, the Asia–Pacific Partnership on Clean Development and Climate (APP), as well as support for the G8 provided by the International Energy Agency (IEA).

### 2.1 What drives industry towards transnational sectoral approaches?

Current initiatives for industry-led, transnational sectoral approaches (e.g. aluminium, cement and steel) are driven by twin motives:

- moderating concerns about carbon leakage in those industry sectors exposed to international competition, owing to asymmetric carbon constraints imposed by uncoordinated domestic policies and measures; and

- expanding the scope of GHG emission reductions, especially in emerging economies, through sector-specific objectives and instruments.

The rationale for differentiation between Annex I and non-Annex I parties to the UN Framework Convention on Climate Change (UNFCCC) has recently grown weaker in energy-intensive industry sectors that are exposed to international competition, such as aluminium, steel, cement, paper and pulp, and organic chemicals. Major companies operating in these sectors in Annex I and non-Annex I parties are broadly comparable, except on the availability of county-specific resources (e.g. natural gas versus coal or raw material inputs) and the ownership of technologies (Egenhofer and Fujiwara, 2008b). Nonetheless, the levels of carbon constraints vary significantly because the domestic policies and measures in Annex I parties are generally linked to their Kyoto Protocol targets, while non-Annex I parties are not bound by quantitative emission-reduction commitments under the Protocol.

Transnational sectoral approaches are expected to become a promising tool to address this dilemma as part of a post-2012 agreement. On the one hand, these approaches could help close the growing gap between developed and emerging economies in the levels of carbon constraints imposed on competing companies through respective policies and measures. In so doing they would ease the concerns about carbon leakage strongly felt in the industry sectors exposed to international competition. On the other hand, they could in effect expand the scope of enhanced mitigation actions to emerging economies through sector-specific objectives and instruments integrated with domestic policies and measures. Cooperation on enhanced mitigation actions in industry sectors across countries can be further promoted to develop and deploy advanced technologies and to remove identified barriers to technology development and deployment.

### 2.2 Coverage

There are a number of industry-led transnational initiatives for sectoral approaches. The cement, aluminium, and iron and steel sectors have set up their respective initiatives: the Cement Sustainability Initiative (CSI) under the World Business Council for Sustainable Development