Baselines for Greenhouse Gas Reductions: Problems, Precedents, Solutions

Summary

"Rigor in baselines

It's important to establish the right degree of rigor in baselining. Overly lax baselines will threaten the system's credibility and usefulness, and shift rents from high quality providers to low quality providers of offsets. Overly stringent baselines will discourage valid projects and drive up project costs.

The only 'magic bullet' for baselining is to set up a national or sectoral baseline, and define offsets against this baseline. A variant is to use facility-level prior output as a baseline, in a context where sectoral emissions are capped, and the caps are binding. (The US market for NOx and VOC offsets provides a precedent.) This will be difficult in most cases; in fact, joint implementation is a device for avoiding the difficulties of setting the sectoral or national caps. However, it is worth thinking about: a) in EITs; b) where project-level interventions have sector-wide implications, as in the power sector and land-use sector. In these cases, calculations of sectoral-level baselines have to be performed anyway.

Keeping baselines honest

Failing that, baseline determination unavoidably has a judgmental component. This means that baseline determination depends not just on methodology, but on a set of institutions that keep the methodology's application reasonable and honest.

Third party certification may not by itself yield unbiased results. In any situation where there are reasonable doubts, incentives will encourage practitioners to rule in favor of higher baselines. This has been true, for instance, in evaluations of public transit systems in the US, where ridership projections have consistently been biased upwards and cost projections consistently biased downwards, resulting in biases in favor of heavily-subsidized capital-intensive rail systems. In contrast, the US system of DSM incentives successfully uses panels of public interest representatives to review evaluations of net energy savings (ie. the equivalent of offset measurement) by third party evaluators. This is noteworthy because DSM incentive programs constitute a large scale (approximately $3 billion/year) analog to the carbon offsets market, facing very similar baseline problems.

Three methodological issues The methodological issues in baseline-setting, broadly are:

1. additionality: the determination of which technology would have been adopted in the absence of offset sales
2. direct emissions: determination of direct emissions conditional on technology,
3. leakage: determination of indirect impacts on emissions.

Of these issues, the second is the most straightforward, though not necessarily simple. It is largely a question of measurement and sampling techniques. Detailed protocols for this exist in the energy and forestry sectors."