If economy-wide approaches set a stringent national emissions cap, they guarantee achieving high integrity emissions reductions. For project-based approaches or economy-wide approaches whose baseline is set in a way that generates “hot air”, additionality needs to be determined at the project level, which can be costly. Moreover, domestic emissions leakage across sectors due to price effects is often a concern. Therefore, national emissions could be growing, even if a project producing ITMOs is delivering emissions reductions relative to business as usual. National level crediting baselines and monitoring avoid domestic price-related leakage and, with an ambitious NDC well below BAU, assure additionality. Project-based approaches cannot guarantee that emissions reductions will take place at the national level, while economy-wide approaches like CAT agreements do that by design. Another advantage of economy-wide approaches are lower transaction costs, as it is not necessary to verify emission reductions of every single project and program (Schwartzman et al., 2021). In conclusion, economy-wide approaches based on stringent baselines like CAT agreements can reduce transaction costs and still guarantee additionality.
