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The Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) includes a number of mechanisms for international co-operation about GHG emission reductions. The Protocol includes two project-based mechanisms, namely the clean development mechanism (CDM) and joint implementation (JI). The operational details of these two mechanisms are discussed in a number of studies which include a number of different arguments for baseline case approaches. A number of these arguments are subsequently referred and discussed.
A number of studies suggest the use of a so-called standard methodology for setting the baseline case for CDM and JI projects. Here, the baseline case serves as a metric for calculating GHG emission reductions that originate from the approved projects and the main issue is therefore to specify GHG emissions in the absence of the project. A number of specific complexities arise in relation to the definition of baseline cases for projects that do not include major new capital equipment, such as projects that include changes in operational practice, land use, land-use changes, and forestry projects.
Papers that evaluate alternative options for the baseline determination of CDM projects include Michaelowa and Dutschke (1998), Chomnitz (1999), Jepma (1999), Matsuo (1999), Parson and Fisher-Vanden (1999), and Harrison et al. (2000). These papers deal with various baseline issues including technology benchmarks, normative benchmarks that are politically chosen, and historical benchmarks based on GHG emission trends. Other important aspects considered include assumptions about baseline development over the timeframe of the CDM project.
He and Chen (1999) have suggested a set of criteria to establish baseline cases from a micro level perspective. In this approach, GHG emissions reduction projects are divided into three project categories:
A benchmark technology baseline to assess power-sector CDM projects could include assumptions about the efficiency and costs of power production technologies in a specific national or regional area, or could be based on international standards. The actual definition of baseline technologies will has major implications on the GHG emission reduction “performance” of the CDM project.
The choice of baseline case approach for CDM projects or JI projects might have major implications on the global cost effectiveness of climate change mitigation projects. A baseline scenario approach that uses internationally standardized technology data implies that the GHG emission reduction potential and related costs are estimated to be similar for projects implemented at quite different sites. Project host countries that have a relatively low GHG emission intensity from their power system compared with the international baseline standard have a relatively strong “market position” in this case, because the GHG emission reductions achieved with the particular CDM or JI project will be assessed to be relatively high. Project host countries with a relatively high GHG emission intensity compared with the international standard will tend to have a weaker market position than in the alternative approach, in which the baseline case reflects specific national GHG emissions. Baseline cases that underestimate the reductions from a particular project in this way result in fewer projects than is justified. This use of international benchmark technology standards can tend to imply a loss in the global cost-effectiveness of CDM or JI projects.
Another drawback to using a baseline case not related to the specific development context of the project host country is that it can be difficult to design the project such that it creates both global (GHG emission reduction) and local benefits (improvements in the local environment, employment, and income generation, and institutional strengthening). Such drawbacks, however, should be balanced against the expected decrease in transaction costs from using an international benchmark baseline case approach.
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