Many opportunities exist in developing countries to reduce greenhouse gas emissions ~ where the latest and most efficient technologies can be applied as these countries develop their economies and infrastructure. This view was codified in the Kyoto Protocol with the creation of the Clean Development Mechanism (CDM). The CDM allows climate mitigation projects undertaken in developing countries to earn credits that can be used to meet emission reduction obligations under the treaty. The Kyoto Protocol does not impose binding emission reduction obligations on developing countries, but allows developed countries to invest in CDM projects, or purchase the emission credits that CDM projects generate, for compliance purposes. Evaluation of project cost and, more importantly, project benefits will be key to determining which projects should be implemented and which projects are ultimately approved under the CDM. To identify the climate change mitigation benefits that can be associated with a particular project, the emissions from the project must be compared to a reference case, known as the baseline. Despite much advancement in climate change science and policy over the past several years, guidelines for baseline methodologies have not been adopted. Policymakers and technical experts under the United Nations Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC), among other bodies, are currently grappling with how baselines should be structured. Looking at experiences with baseline development for an energy project in Mexico, this report will explore key factors for calculating baselines and which issues should be considered during this process. Mexico is currently expanding its power generation capacity and, at the same time, trying to move away from oil and coal to higher efficiency and cleaner natural gas systems. These dynamics, as well as others revealed in the Mexican case study, demonstrate the complexities that enter into greenhouse gas (GHG) baseline calculations.
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