The objective of this paper is to introduce a two-step methodology for determining baselines to evaluate project-based flexible instruments under the UN Framework Convention on Climate Change, such as the Clean Development Mechanism and Joint Implementation. The methodology includes the application of an optimising energy and material flow model. First, existing methodologies for baseline setting are presented and discussed regarding a set of relevant criteria. The discussion leads to the conclusion that existing methods scarcely live up to the requirements derived from the Kyoto Protocol and the ongoing negotiation process. In order to overcome these deficiencies, a suggested two-step methodology is presented. Finally, the methodology's application to Indonesia provides emission factors for the evaluation of emissions reductions of projects within the Indonesian power sector.
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