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Baselines for greenhouse gas reductions: problems, precedents, solutions

This paper, Baselines for greenhouse gas reductions: problems, precedents, solutions, discusses the problems with baselines for greenhouse gas reductions and suggests guidelines for setting up a baselining system.

The Kyoto Protocol allows developed countries to sponsor greenhouse gas (GHG) reduction projects in host countries. The difference between the project’s actual emissions, and the hypothetical emissions had the project not been implemented, constitute a savings or offset, typically measured in tons of CO2 or carbon equivalent. This quantity can be sold as an emissions reduction (ER) to developed-country buyers, who use it to offset their own GHG emissions. The credit has value because the buyers face either a tax or a limit on net GHG emissions.

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.

Agreed-on baselines will always be problematic for three reasons.

  • First, it is inherently difficult to predict what would have happened in the ‘but-for’ world.
  • Second, both buyers and sellers of ERs have strong incentives to overstate the baseline level of emissions, since this increases revenues for the seller and in aggregate may reduce the price of offsets for buyers.
  • Third, baseline setting requires some assumptions about national policies. The project-level approach to emissions reductions obscures, but does not really eliminate, the political issues associated with setting national emissions budgets.

Section 1 provides an introduction to baselines

Section 2 reviews the consequences of inaccurate baselines and discusses the trade offs associated with different levels of baseline rigor.

Section 3 focuses on how asymmetric or uncertain information about key behavioral parameters leads to baseline uncertainty.

Section 4 discusses four general methodological approaches to overcoming these problems and establishing baselines.

Section 5 discusses the use of partial crediting and information revelation strategies to correct for asymmetric information problems.

Section 6 discusses of spatial and temporal boundary issues.

Section 7 discusses the lessons learned from demand-side-management incentive programs in the US, an interesting large-scale analog to GHG offsets.

Section 8 offers recommendations for baseline practitioners.

Read Baselines for greenhouse gas reductions: problems, precedents, solutions.