The focus of the present paper is on joint implementation (JI) projects between countries in Western and Eastern Europe and especially on the problems of constructing credible references (baselines). A number of the present EU countries are anticipated to have severe problems in meeting their greenhouse gas reduction commitments and they have already announced that they shall take advantage of JI in this connection. As stated in the Kyoto Protocol, JI emission reductions must be real and measurable. However, in most cases the reductions obtained by a JI project do not occur at the project site but elsewhere in the energy system. Therefore, when a number of JI projects are implemented concurrently and other changes in the energy system take place over time, there is no way to measure the reductions obtained by individual projects. Because the emission reduction obtained is a property of the entire energy system, it cannot be estimated a priori on the basis of a project baseline alone. A baseline must refer to the national energy system of which the project is a part. It is argued in this paper that baselines should be derived from national energy systems databases and models, which serve to ensure that JI projects effectively contribute to the fulfillment of the Kyoto Protocol objectives. In addition, they should provide governments with comprehensive energy information systems needed to address long-term climate mitigation and energy demand and supply issues in a rational, least-cost manner. Compared to other climate mitigation costs and the costs of failure to meet the Kyoto commitments the costs involved in the preparation of the databases needed and the implementation of systems analysis and documentation programs will be small. If these costs are carried by national governments, the investors in JI projects will benefit from lower transaction costs. (C) 2003 Elsevier Science Ltd. All rights reserved.