Options for baselines of the clean development mechanism

The Kyoto Protocol created the Clean Development Mechanism (CDM) to allow industrial countries to reach part of their greenhouse gas (GHG) emission reduction through projects in developing countries. To calculate the achieved emission reduction a reference scenario has to be developed – the baseline. Despite efforts to develop realistic baselines, a certain degree of uncertainty regarding actual reductions will be inevitable. It is therefore necessary to compare the costs (including transaction costs) of developing a baseline against the informational benefit it can be expected to produce. While project-related baselines are already being applied, the proponents of country-related baselines have still to show the applicability of their approach for the CDM. The possibility of quantifying indirect effects and considering market distortions and subsidies through aggregation in the country-related baselines is weighed up by the manipulability and uncertainty of the assumptions required in such a baseline. Thus project-specific baselines are recommended. In cases of severely distorted markets undergoing liberalization or subsidy phase-out, a country-related baseline can be helpful. Sectoral or programme baselines would be suited to large-scale energy and sequestration projects. Moreover it has to be considered whether emission reductions are generally achieved in the context of relocation or done in the context of global emitting capacity expansion.