1. Financial
2. Technological
3. Institutional

Test 2(a): Financial barriers. This test addresses how offset funding impacts the project in question. Financial barriers tests are generally considered to be one of the more rigorous and stringent tests of additionality. There are two main types of financial barriers a project can face: capital constraint and internal rate of return. The capital constraint test addresses whether a project would have been undertaken without offset funding. The internal rate of return test indicates whether or not a project would have met established targets for internal rates of return without offset funding. There are other acceptable financial barriers tests, but these are the most commonly used.

Key questions: Does this project face capital constraints that offset funding can address? Or will offset funding bring the internal rate of return to a level that enables the implementation of the project?

Test 2(b): Technological barriers. There are several categories of assessment that could fall under this test. If the primary reason for implementing a technology is its emission reduction benefits, that project is generally considered to be additional. For example, a more energy efficient hot water heater is available, but its additional cost is barring its entry into the market. In this case, offset funding could bridge the funding gap and bring a technology to market that otherwise would not have been. In this case, the emission reductions resulting from the deployment of the new technology are clearly above and beyond business as usual.

Key question: Is the primary benefit or purpose of the technology in question its emission reduction capabilities?

Test 2(c): Institutional barriers. This test can be organizational, social, or cultural. For example, a company that is reluctant to implement a project that is not within its normal purview or is reluctant to capitalize a project with uncertain returns. In this case, offset funding could assist in overcoming that barrier.

Key question: Does this project face significant organizational, cultural, or social barriers that carbon funding will help overcome?

• Economic returns do not necessarily make a project non-additional. There are instances where projects with high rates of return remain unimplemented – the energy efficiency sector is the most well know of these examples. To demonstrate additionality for projects that generate rates of return, it can be useful to describe the barriers faced by the project. Include a clear explanation of the project's return rate with a pro forma financial analysis showing both the with- and without-project cases. For example, Company Y typically does not pursue project activities unless they provide a 25% rate of return. An energy efficiency upgrade at the facility will generate a 15% rate of return. The additionality case is that offset funding can be used to increase the return of the efficiency measures to a level that is acceptable to management.
• Another essential offset project element related to additionality is the initiative's requirement that projects are implemented in the future. This means that project activities cannot start until Emission Reduction Purchase Agreements (offset contracts) are signed.