7.3.2.4 Specific Baseline Issues Related to International Co-operative Mechanisms
for Greenhouse Gas Emission Reductions
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:
- technology innovation, in which the GHG emission reduction project should
be compared with existing technologies;
- new constructed plants, in which the GHG emission reduction project should
be compared with alternative new advanced technologies; and
- technology substitution, in which the GHG emissions reduction project should
be compared with a newly constructed existing plant.
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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