Baseline recommendations for greenhouse gas mitigation projects in the electric power sector

The success of the Clean Development Mechanism (CDM) and other credit-based emission trading regimes depends on effective methodologies for quantifying a projectʹs emissions reductions. The key methodological challenge lies in estimating projectʹs counterfactual emission baseline, through balancing the need for accuracy, transparency, and practicality. Baseline standardisation (e.g. methodology, parameters and/or emission rate) can be a means to achieve these goals. This paper compares specific options for developing standardised baselines for the electricity sector—a natural starting point for baseline standardisation given the magnitude of the emissions reductions opportunities. The authors review fundamental assumptions that baseline studies have made with respect to estimating the generation sources avoided by CDM or other emission-reducing projects. Typically, studies have assumed that such projects affect either the operation of existing power plants (the operating margin) or the construction of new generation facilities (the build margin). The authors show that both effects are important to consider and thus recommend a combined margin approach for most projects, based on grid-specific data. They propose a three-category framework, according to projects’ relative scale and environmental risk.