Additionality

The issue of what qualifies as a bona fide offset and why largely boils down to a concept called “additionality.”  Usually phrased as the question “is the project reducing emissions in a way that is business as usual, or is it beyond business as usual,” the concept of additionality reflects people’s gut feeling that if a project was or is reducing emissions regardless of the prospect of offset revenues, we shouldn’t be giving it offset revenues.  Instead, we should give offsets revenues only to those projects that really need them.  Where people begin to disagree is on how to put that concept into practice – how high and in what manner should we set the additionality bar.

Project-Specific Additionality

The standards with the broadest global voluntary market support – those of the United Nations Framework Convention on Climate Change and WWF Gold Standard – have a few basic tests.  Assuming that the project is not required by law, and that it was implemented after the potential for offsets revenues existed, these tests boil down to a series of questions:

• Is the return on project investment, without offset revenues, too low for the project owner to make the investment?  If so, and if the prospect of offset revenues raises the expected return to an adequate level, the project is additional.

• If the return on investment without offset revenues is or would be adequate, does the project owner, without offset revenues, lack access to the capital to make the investment?  If so, and the offset revenues provide the necessary capital, or enable access to it (such as providing the downpayment), the project is additional.

• If the return is adequate and capital is available without offset revenues, are there other barriers to implementation – technical barriers, for example – that offset revenues can overcome?  If so, the project is additional.

• If the return is adequate, capital is available, and there are no technical barriers, is the project the first or substantially the first of its kind in the particular market, region or application?  If it is the first or substantially the first of its kind, it is by definition not business as usual, and so is additional.

Achieving the Right Balance

Project-specific additionality standards have their detractors.  The principal concern is that strict insistence on the literal use of these standards can itself be a barrier to the rapid and widespread implementation of CO₂ mitigation projects – conducting an additionality assessment using these tests, on a project-by-project basis, can be time consuming and costly, and in some cases can make the offset investment impossible.  The question then becomes whether to use alternative standards that also serve the goal of rapid and widespread implementation of CO₂ mitigation projects?

The tension at work in answering this question involves arriving at an optimum balance.  The stringency of project-specific additionality standards produces inefficiencies that can prevent implementation of projects that would in fact meet the standards, but relaxing or departing from those standards necessarily results in crediting as additional some CO₂ mitigation projects that are in fact business as usual.

Performance Standards

The most significant departure from project-specific additionality standards, the other end of the spectrum, is called the “performance standard.”  This standard involves crediting as bona fide offsets all CO₂ reductions created by projects whose emissions rate is lower than a predetermined benchmark rate – the performance standard.  For electricity generation, the performance standard might be the average emissions rate of all electricity generators on the grid, and any kind of electricity generator whose emissions rate was lower would be deemed to be additional, regardless of whether in fact it is business as usual.  Were the performance standard set too high, all natural gas-fired power plants would be seen as additional, when clearly they are business as usual.  Even a performance standard that uses a very low emissions rate would credit as additional all non-emitting electricity generators, such as wind farms, when some wind farms are being built as the lowest long-term cost alternative, and so are almost certainly business as usual. 

NativeEnergy’s Position

NativeEnergy uses the project-specific additionality criteria described above, although in an effort to achieve the right balance, in certain circumstances we treat a group of related projects as a single project for additionality assessment purposes: where we are helping build a group of related projects each of which is small to justify the time and expense necessary to conduct an individualized additionality assessment; and where our participation requires a commitment to all of the related projects or none of them.

NativeEnergy does not use performance standards.  We believe that in the voluntary market, performance standards are not an appropriate test for additionality for several reasons:

• At whatever level a performance standard is set, a very significant number of business as usual projects will be credited as additional.
• Purchasers in the voluntary market are motivated principally by a desire to make a difference – to foster the development of CO₂ mitigation projects that would not “happen anyway.”
• The crediting of offsets from projects that are happening anyway can result in significant adverse media coverage, which seriously undermines the principal motivation of voluntary market purchasers.
• The voluntary market is too nascent and fragile to withstand significant media criticism.

Ultimately, we believe that the use of performance standards in the voluntary offsets market, while convenient, puts the voluntary market at a significant and unacceptable risk of harm.