WORK ON METHODOLOGICAL ISSUES
At its fifth session, the Subsidiary Body for Scientific and Technological Advice (SBSTA) requested the
secretariat to develop practical options with regard to an indicative list of methodological issues related
to activities implemented jointly under the pilot phase. The secretariat has undertaken work for that
purpose with the support of Parties and in collaboration with a number of partners. Preliminary findings,
obtained by consulting with experts, on the issue of the determination of environmental benefits, may be
found below. Such initial findings will be utilized in developing practical options.
A. The Reference Case / Baseline Scenario
Activities implemented jointly (AIJ) must fulfil the criteria of decision 5/CP1, to "bring about real,
measurable and long-term environmental benefits related to the mitigation of climate change that would not
have occurred in the absence of such activities" (paragraph 1(d)).
The baseline for an AIJ project is a counterfactual construct, a scenario that may never actually unfold.
The baseline for an AIJ project defines the scenario that would have occurred in the host country in the
absence of the activity implemented jointly. The baseline scenario is the necessary foundation for
calculating, by comparison, the global environmental benefits that would accrue if the AIJ project were
Credible baselines are critical to determining the environmental benefits of activities implemented
Guidelines for the determination of AIJ baselines would be useful in promoting transparency and
comparability in activities implemented jointly.
1. Characterizing the Baselines
The calculations underlying the baseline
for each AIJ project need to be sufficiently transparent in order to allow Parties to the UNFCCC to verify
the estimates or reproduce the calculations, should they choose to do so.
All activities implemented jointly require project-specific baselines. The methodologies used in
calculating the baseline scenario may be sector-specific, technology-specific or country-specific.
The baseline scenario for an AIJ project should be constructed ex ante and should include an
indication of greenhouse gas emissions expected to occur in the absence of the AIJ project.
A variety of technologies could be envisaged as central to the construction of the baseline scenario. For
purposes of constructing the baseline and estimating the incremental environmental benefits of an activity
implemented jointly, preferential consideration should be given to using the technology which would have
been the most likely marginal addition to the host country economy. By contrast, using the
average technology available in the host country as the foundation for the baseline may lead to an
exaggerated and inaccurate estimate of the expected environmental benefits from the AIJ project.
(a) System Boundaries
System boundaries for AIJ projects should be
appropriate to the scale and complexity of the activity, so as to incorporate consideration of possible
For the purposes of constructing the baseline for an AIJ project, the relevant system boundary and
timeframe should be determined by the project participants and approved by the governments of the investing
and host countries. This agreement should be accessible to the Parties to the UNFCCC in order to verify the
assumptions, should they choose to do so.
In many cases, the relevant system boundary for the baseline of an AIJ project is the border of the site of
the proposed activity. In other cases, the systemic effects of the AIJ project may be captured more
completely if the boundary is defined by a network of inter-connected facilities, for example an electric
utility grid, or by an economic sector like transportation or forest products.
(b) Time Frames For Activities Implemented Jointly
The project participants,
acting in accordance with accepted guidelines, will establish the time frame or duration of an activity
implemented jointly. The selection of a relevant time frame may be guided by consideration of the technical
or financial characteristics of the activity or by policy factors.
For example, in projects with equity financing, a relevant time frame for the determination of
environmental benefits could be the engineering or operating lifetime of the project. In projects with debt
financing, a relevant time frame may be the amortization or depreciation lifetime of the project.
Future attention should be given to those cases in which the annual net environmental benefits of an AIJ
project become negative during the life of the project.
(c) Enduring or Dynamic Baselines
The calculated baseline for each AIJ
project should remain fixed, so as to ensure predictability for investors.
However, for projects with long lifetimes, the participants may propose revisions to the project baseline
at appropriate intervals. Any such changes should be approved by both host and investing countries. They
must be reported to the secretariat of the UNFCCC. Such changes could be subject to challenge by other
Parties to the Convention.
For a given class of projects, the appropriate methodology of constructing baseline scenarios may change
Technological change or change in the policy context of the host country, for example, may lead to changes
in the method for calculating baseline scenarios.
(d) Precision in the Determination of Environmental Benefits
required in determining environmental benefits from activities implemented jointly should be commensurate
with the scale and complexity of the activity. The degree of precision in the baseline need not exceed that
which is needed for the measurement of the performance of the project.
An issue that will require further work is how to prevent systematic errors in the calculation of AIJ
(e) Verification of Environmental Benefits by Independent Third
Carbon emissions offsets have never been traded internationally before.
Technical limits in estimating the environmental benefits and economic value of these emissions offsets
reliably may add uncertainties to the evaluation of AIJ projects, compared to the normal array of risks
associated with more traditional investments. These uncertainties suggest the need to establish a process
for verification of the environmental benefits of AIJ projects.
One option for the verification of AIJ baselines involves the use of independent, third-party auditors.
Third-party verification can be used to assess the credibility of AIJ baselines and of the related
calculation of environmental benefits. Such verification procedures should confirm that the guidelines of
the Conference of the Parties (COP) have been applied in a reasonable manner and that the data supplied by
the project participants is credible.
Third party verification may not be necessary for all AIJ. Random audits of AIJ baselines may be sufficient
to establish the credibility of the process. Alternatively, the verification process could be initiated on
a specific project following a request from either a project participant or another Party to the UNFCCC.
B. Environmental Benefits
Decision 5/CP.1 provides Athat activities implemented jointly should bring about real, measurable and
long-term environmental benefits related to the mitigation of climate change that would not have occurred
in the absence of such activities@ (paragraph 1(d)).
The estimated environmental benefits related to the mitigation of climate change of an activity implemented
jointly (AIJ) are equivalent to the difference between the quantity of greenhouse gas (GHG) emissions
released or sequestered as a result of the activity and the amount of GHG emissions that would have been
released or sequestered in the baseline or reference scenario. If defined in this way, the estimated
environmental benefits should take into consideration any possible leakage.
In assessing the environmental benefits of an activity implemented jointly, it is important to ensure that
the claimed benefits fulfil the criteria of decision 5/CP.1. That is to say that the claimed benefits are
real, measurable, long-term and additional.
The environmental benefits related to the mitigation of climate change of an AIJ would be recognized as
real if the actual GHG emissions or sequestration can be shown to differ from a credible and
probable baseline scenario, taking leakage into account. In the case of an GHG emission project, the actual
GHG emissions in the project case must be lower than the projected GHG emissions in the baseline scenario.
In the case of an GHG sequestration project, the actual rate of sequestration in the project case must be
higher than the projected GHG emissions in the baseline scenario.
The environmental benefits of an AIJ related to the mitigation of climate change are considered to be
measurable if the actual level of GHG emissions of the project case and the level of GHG emission in
the baseline scenario can be established with a reasonable degree of certainty. The degree of certainty in
each case will need to be determined. Direct measurement is the preferred method for observing emissions in
the project case. This may not be possible in the baseline scenario, which is often a counterfactual
The environmental benefits of an AIJ related to the mitigation of climate change can be recognized as
long-term if the emissions avoidance or sequestration are sustainable, i.e. they persist over an
appropriate period of time which may extend beyond the life of the project.
The environmental benefits of an AIJ related to the mitigation of climate change can be recognized as
additional if it can be demonstrated that the resulting environmental benefits related to GHG would
not have otherwise occurred. Several methods are currently being used or developed to demonstrate this
additionality. Possible methods include:
(a) Measuring additionality for an AIJ against a credible, quantitative baseline;
(b) Defining narrow categories of activity types whose emission benefits will a priori be
considered additional; or
(c) Assessing additionality by evaluating whether an AIJ overcame financial (not to be confused with the
aspects dealt with in the next section), institutional, technological, or other barriers to project
Guidelines should be developed to facilitate the determination of environmental benefits related to the
mitigation of climate change. Such guidelines should provide a set of internationally accepted methods of
executing the necessary calculations and evaluations of environmental benefits generated by an AIJ. In some
cases, those guidelines could allow for a choice between such recommended methods or a combination of
C. Financial Additionality
Decision 5/C.P.1 provides "that the financing of activities implemented jointly shall be
additional to the financial obligations of Parties included in Annex II to the Convention within the
framework of the financial mechanism as well as to current official development assistance (ODA)
flows" (paragraph 1(e)).
This financial additionality should not be confused with the assessment of the financial feasibility of
potential AIJ/Joint Implementation (JI) projects as an indicator of the environmental additionality of a
project, if this indicator is to be used for such purposes.
The issue of financial additionality may become less significant after the pilot phase when emissions
reductions are credited, assuming that considerably more private funding of JI will then take place. By
definition, private funding is not ODA. Besides, it is unlikely that the private sector will contribute
directly to the financial mechanism of the Convention.
Among ways to operationalize financial additionality conceivable options include establishing a link
between the recognition (or the crediting when established) of an AIJ with the level of ODA and
contributions to the financial mechanism of the Convention, as well as excluding strictly from AIJ funding
any ODA or GEF funding.
D. Compatibility and Supportiveness of National Priorities
Activities implemented jointly should be compatible with and supportive of national
environment and development priorities, especially in host countries. In this regard, it is important that
designated national authorities of host Parties who are charged with the responsibility of approving AIJ
have the capacity to ascertain whether the proposed activities are compatible with and supportive of
national environment and development priorities and strategies. Individual Parties may establish their own
criteria for acceptance of AIJ-projects, such as capacity building and transfer of appropriate
E. Possible Approaches and Need for Additional Work
To strengthen the credibility of the AIJ regime, guidelines and methodologies for
establishing AIJ baselines should be developed. The degree of detail necessary in these guidelines and
methodologies remains to be determined.
Methodologies for the determination of environmental benefits should meet the following criteria of
credibility, transparency, operational simplicity and predictability. The Parties to the UNFCCC require
that these methodologies be both credible and transparent. Project participants need methods that are
simple to apply, user-friendly, and involve low transaction costs. Private investors require a measure of
predictability in the application of the guidelines so that they may gauge the value of AIJ projects.
The guidelines for preparing AIJ baselines should provide project participants with several options. One
option might include the use of tools such as simplified methodologies, matrices and analytic typologies. A
second approach might include the use of some simple paradigmatic illustrations that could be followed by
project participants in the construction of typical baselines. Yet another option could allow the project
participants to construct more elaborate baseline scenarios based on sufficient country-specific and
Additional work may be needed in the following areas (not in an order of importance):
(a) Development of guidelines:
(i) at a level of specificity which needs to be determined; (ii) with respect to system boundaries and
consideration of leakage; (iii) for the preparation of sector-specific and technology-specific
baselines; and (iv) to prevent systematic errors in the determination of AIJ baselines;
(b) Identification of sectors and technologies which are to be given priority in this process of
methodological work and identification of indicative criteria for these sectors and technologies;
(c) Definition of narrow categories of projects that could be assumed on an a priori basis to
provide additional environmental benefits;
(d) Consideration of activities in which estimated emissions in the project case reach or exceed the
level of estimated emissions in the baseline;
(e) Institutional issues that would need to be addressed in a post-pilot phase with regard to crediting,
if such crediting were agreed to by the Parties;
(f) Establishment of appropriate procedures and mechanisms for third-party verification (Such work might
be enriched by drawing upon lessons learned from the Helsinki Process on Tied Aid.);
(g) Clarification of the operational definition of financial additionality with regard to ODA;
(h) Further exploration of the issue of "perverse incentives" and their implications;
(i) The operational determination that environmental benefits are real and are long-term;
(j) The possibility of earning credits in the future for focused capacity-building activities; and
(k) The problem of how to value benefits other than GHG emissions reductions or sequestration.
UNITED NATIONS - Climate Change Convention Secretariat
Attn. Kai-Uwe B. SCHMIDT (Mr.)
P.O. Box 260 124,
Telefax: (49 228) 815 1999
Direct E-mail: email@example.com