Establishing a baseline

Baselines are established using a baseline methodology. These methodologies allow project participants to quantify the estimated greenhouse gas removals in the most plausible alternative scenario to implementation of the project activity (the baseline scenario). More information on creating a baseline methodology for afforestation and reforestation (A/R) projects is contained in the methodologies section.

Baselines for A/R project activities must be established in accordance with the rules set out in 5/CMP.1, Annex, paragraph 20:

The baseline net greenhouse gas removals by sinks for a proposed afforestation or reforestation project under the CDM shall be established:

1. By project participants in accordance with provisions for the use of approved and new methodologies, contained in decision 19/CP.9, the present annex and relevant decisions of the COP/MOP;
2. In a transparent and conservative manner regarding the choice of approaches, assumptions, methodologies, parameters, data sources, key factors and additionality, and taking into account uncertainty;
3. On a project-specific basis;
4. In the case of small-scale afforestation and reforestation project activities under the CDM, in accordance with simplified procedures developed for such activities;
5. Taking into account relevant national and/or sectoral policies and circumstances, such as historical land uses, practices and economic trends (5/CMP.1, Annex, paragraph 20).

Elements (a) - (c) and (e) are discussed in detail below. Information on baseline methodologies for small-scale A/R projects (item (d)) is contained in the chapter on establishing a baseline for small-scale A/R projects.

Provisions for using approved and new baseline methodologies

5/CMP.1, Annex, paragraph 21 sets out that in calculating baseline greenhouse gas removals by sinks, project participants may elect not to account for one or more carbon pools:

In calculating the baseline net greenhouse gas removals by sinks and/or actual net greenhouse gas removals by sinks, project participants may choose not to account for one or more carbon pools, and/or emissions of the greenhouse gases measured in CO2 equivalents, while avoiding double counting.  This is subject to the provision of transparent and verifiable information that the choice will not increase the expected net anthropogenic greenhouse gas removals by sinks.  Project participants shall otherwise account for all significant changes in carbon pools and/or emissions of greenhouse gases measured in CO2 equivalents by the sources that are increased as a result of the implementation of the afforestation or reforestation project activity, while avoiding double counting (5/CMP.1, Annex, paragraph 21).

The following GHG emissions sources related to A/R CDM project activities may be neglected in A/R baseline and monitoring methodologies:

a.       Fossil fuel combustion in A/R CDM project activities;

b.       Collection of wood from non-renewable sources to be used for fencing of the project area; and

c.       Nitrous oxide (N2O) emissions from decomposition of litter and fine roots from N-fixing trees. (EB 44, paragraph 37)

A transparent and conservative manner

The Executive Board has clarified the meaning of 'transparent and conservative' in the context of baseline methodologies. 'Transparent' means:

...that assumptions are explicitly explained and choices are substantiated (EB 5, Annex, 3, paragraph 10(a)).

'Conservative' means that:

In case of uncertainty regarding values of variables and parameters ... the resulting projection of the baseline does not lead to an overestimation of emission reductions attributable to the CDM project activity (that is, in the case of doubt, values that generate a lower baseline projection shall be used) (EB 5, Annex, 3, paragraph 10(a)).

The Executive Board has also clarified that:

When defining which emission sources should be considered in the project boundary, in the baseline scenario and in the calculation of leakage emissions, project participants should make conservative assumptions, for example the magnitude of emission sources omitted in the calculation of project emissions and leakage effects (if positive) should be equal to or less than the magnitude of emission sources omitted in the calculation of baseline emissions (EB 22, Annex 2, paragraph 11).

On a project-specific basis

In selecting a baseline methodology, project participants must choose from one of three approaches set out in 5/CMP.1, Annex, paragraph 22, and must justify their selection:

In choosing a baseline methodology for an afforestation or reforestation project activity under the CDM, project participants shall select from among the following approaches the one deemed most appropriate for the project activity, taking into account any guidance by the Executive Board, and justify the appropriateness of their choice:

1. Existing or historical, as applicable, changes in carbon stocks in the carbon pools within the project boundary
2. Changes in carbon stocks in the carbon pools within the project boundary from a land use that represents an economically attractive course of action, taking into account barriers to investment
3. Changes in carbon stocks in the pools within the project boundary from the most likely land use at the time the project starts (5/CMP.1, Annex, paragraph 22).

Treatment of national and/or sectoral policies

The Executive Board has clarified that in general:

A baseline scenario shall be established taking into account relevant national and/or sectoral policies and circumstances, such as sectoral reform initiatives, local fuel availability, power sector expansion plans, and the economic situation in the project sector (EB 22, Annex 3, paragraph 4).

However, only mandatory laws and regulations need to be taken into account, so national and local policies that do not have legally-binding status can be ignored:

The alternative(s) shall be in compliance with all mandatory applicable legal and regulatory requirements, even if these laws and regulations have objectives other than GHG reductions, e.g. to mitigate local air pollution (EB 29, Annex 5).

In addition, the Executive Board has created exceptions for the following types of mandatory national and/or sectoral policies:

1. National and/or sectoral policies or regulations that give comparative advantages to more emissions-intensive technologies or fuels over less emissions-intensive technologies or fuels [so-called Type E+ policies].
2. National and/or sectoral policies or regulations that give comparative advantages to less emissions-intensive technologies over more emissions-intensive technologies (e.g. public subsidies to promote the diffusion of renewable energy or to finance energy efficiency programs) [so-called Type E- policies] (EB 22, Annex 3, paragraph 6).

At EB 16, the Executive Board had originally identified two other types of national and/or sectoral policies:

1. Sectoral mandatory regulations adopted by a local or national public authority motivated by the reduction of negative local environmental externalities and/or energy conservation and which would incidentally also reduce GHG emissions [so-called Type L- policies].
2. Sectoral mandatory regulations adopted by a local or national public authority motivated by the reduction of negative local environmental externalities and which incidentally prevent the adoption/diffusion of less GHG emitting technology [so-called Type L+ policies] (EB 16, Annex 3, paragraph 1).

This guidance was revised at EB 22 and replaced with guidance that distinguished only between Type E+ and Type E- policies (EB 22, Annex 3, paragraph 3).  No further mention has been made by the Executive Board of Type L+ and Type L- policies.

For Type E+ policies, the Executive Board has confirmed that only those policies implemented before 11 December 1997 can be taken into account when developing the baseline scenario:

Only national and/or sectoral policies or regulations under paragraph 6 (a) that have been implemented before adoption of the Kyoto Protocol by the COP (decision 1/CP.3, 11 December 1997) shall be taken into account when developing a baseline scenario. If such national and/or sectoral policies were implemented since the adoption of the Kyoto Protocol, the baseline scenario should refer to a hypothetical situation without the national and/or sectoral policies or regulations being in place. (EB 22, Annex 3, paragraph 7(a)).

For Type E- policies, the Executive Board has confirmed that only those policies implemented before 11 November 2001 need to be taken into account when developing the baseline scenario:

National and/or sectoral policies or regulations under paragraph 6 (b) that have been implemented since the adoption by the COP of the CDM M&P (decision 17/CP.7, 11 November 2001) need not be taken into account in developing a baseline scenario (i.e. the baseline scenario could refer to a hypothetical situation without the national and/or sectoral policies or regulations being in place) (EB 22, Annex 3, paragraph 7(b)).

The objective of these policies is to avoid creating perverse incentives for the non-implementation of beneficial laws and policies:

As a general principle, national and/or sectoral policies and circumstances are to be taken into account on the establishment of a baseline scenario, without creating perverse incentives that may impact host Parties' contributions to the ultimate objective of the Convention (EB 22, Annex 3, paragraph 5).

Finally, where analysis shows that there is widespread non-compliance in a country or region with mandatory laws and policies, then a scenario involving non-compliance may be a valid baseline:

If an alternative does not comply with all mandatory applicable legislation and regulations, then show that, based on an examination of current practice in the country or region in which the law or regulation applies, those applicable legal or regulatory requirements are systematically not enforced and that non-compliance with those requirements is widespread in the country. If this cannot be shown, then eliminate the alternative from further consideration (EB 29, Annex 5).

In the case of one approved baseline methodology (for large-scale non-forestry projects), AM0012, the Executive Board found that while monitored compliance with a particular national policy was less than 50%, it could not be said that the policy was enforced. Once monitored compliance exceeded 50%, however, the assumption that the policy is not enforced would no longer be tenable. The baseline scenario in that case was identified as a gradual improvement of compliance with the policy.