#### 5.3.2 A compliance system for sectoral approaches: An example of the EU

An example of a functioning compliance system can be found in the EU ETS. The EU scheme has a robust compliance system from an institutional perspective. Art. 16 of the EU ETS Directive describes procedures for consequences in the case of non-compliance, i.e. penalties. The penalty started with $ €40/tCO_{2}-e $ in the first phase (2005–07) but amounts to $ €100/tCO_{2}-e $ in the second phase (2008–12). The non-compliance penalty will further increase from $ €100/tCO_{2}-e $ in the third phase (2013–20) in accordance with the European Index of Consumer Prices (i.e. the inflation rate) to maintain a deterrent effect. $ ^{50} $ Moreover, payment of the penalty will not release the operator from the obligation to surrender in the following year an amount of allowances equal to the excess emissions.

While installations in the ETS sector (i.e. the electricity and industry sectors) are subject to a relatively strong compliance system, member states will not be held liable for breaching their individual targets limiting GHG emissions from non-ETS sectors. Under Art. 7 on “corrective action” of Decision 406/2009/EC, member states will have to compensate for underperformance in the following year. For this purpose, the excess emissions will be multiplied by a mandatory climate ‘abatement factor’ of 1.08, reducing emission allowances for the following year. $ ^{51} $

### 6. Sectoral approaches as part of the post-2012 framework

A reference to sectoral approaches in the Bali Action Plan means that there is a chance for them to become part of the post-2012 framework. They could be linked to other priority issues, such as further commitments by developed countries, NAMAs by developing countries, financing and technology. This section first discusses the shape of the post-2012 architecture and then how sectoral approaches can fit into the post-2012 framework.

### 6.1 Decentralisation and flexibility in the post-2012 architecture

Although it is difficult to speculate much on the prospects of reaching a post-2012 agreement, some preliminary thinking has developed over how the future framework might look. It is suggested that the post-2012 architecture will likely have a more decentralised and flexible architecture than its predecessor. It would entail less rigidity in the overall architecture, reflecting a shift in the economic capabilities of parties, increasing mobility among groups of countries on the ladder of making strong commitments and enlarging a portfolio of instruments to meet commitments – including innovative tools of tradable units to enable a variety of actions contributing to the GHG emission reductions to be counted (Fujiwara, 2008). It is even argued that a pledge-and-review model for supporting technology, finance and capacity building could fit into the decentralised approach favoured by the Bali Action Plan (Doorbosch and Knight, 2008). Such decentralised approaches (which we call 'bottom-up') would rely greatly 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. Clear targets and timetables are needed. Measurement, reporting and verification are required for NAMAs by developing countries in accordance with the Bali Action Plan.