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In the past peripheral ERA (or better known as FIP or DIPS= Pitcher's ERA independent of the defense) has been proven to be a better predictor of future ERA than actual ERA.
So it's based on peripherals (BB, K, and HR mainly) and assumes every pitcher will have the same BAPIP (no pitcher has really shown otherwise).
Fangraphs is really good for this purpose. It will give you FIP's and BAPIP's for any player for every season.