At minimum all GHG offsets resulting from proposed projects must be regulatory surplus, i.e. over and above what is required by law. A GHG offset is surplus if it is not otherwise required of a source by current regulations or other legal obligations.
Additionality Guidance
The additionality of each project proposal will be assessed on a project-by-project basis. Applicants should review the following information and incorporate this approach into the presentation of their projects’ additionality case.
The Climate Trust uses three common tests to determine a project’s additionality: 1) Regulatory Surplus Test, 2) Barriers Tests, and 3) Common Practice Test. These tests are based on the Kyoto Protocol’s Clean Development Mechanism methodology, as well as the World Resource Institute’s GHG Protocol for Project Accounting. These tests are illustrated in the Additionality Determination Matrix and are explained in greater detail below.
It is important to note that there is a certain degree of subjectivity in the assessment of additionality. These tests are based on emerging norms and best practices in the burgeoning offset market in the United States and internationally. These principles and practices are intended to assure that GHG offset projects deliver on their basic promise- to mitigate GHG emissions as effectively as on-site or direct GHG reductions.
Test 1: Regulatory Surplus. The Regulatory Surplus Test ensures that the project that is occurring is not mandated by any existing law, policy, statute or other regulatory framework. If it is, then it is assumed that the project is being developed to comply with the law or regulation and thus, cannot be considered additional to the business as usual scenario.
Key Question: Is this project mandated by any existing law, policy or statute?
Test 2: Implementation Barriers. The implementation barriers tests are at the heart of the additionality determination process. There are three main implementation barriers tests: 1) Financial, 2) Technological, and 3) Institutional. A project must meet at least one, though preferably more than one, of the following barriers tests in order to be considered additional.
Test 2(a): Financial Barriers. The financial barriers 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. Internal rate of return indicates whether or not a project would have met established targets for internal rates of return without offset funding. These are not the only acceptable tests of financial barriers, but are the most commonly used.
Key Question(s):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 GHG reduction benefits, that project is generally considered to be additional. For example, if a more energy efficient, though more expensive to manufacture, model of a hot water heater is available and the additional cost is barring its entry into the market, offset funding can help bridge that gap and bring a technology to market that otherwise would not have been. In this case, the GHG 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 GHG reduction capabilities?
Test 2(c): Institutional Barriers. Institutional barriers can be organizational, social or cultural. If a GHG reduction project fall outside of the normal purview of a company or organization and there is reluctance to implement a project that is not within that purview or to capitalize a project with uncertain returns, offset funding can often assist in overcoming that barrier.
Key Question:Does this project face significant organizational, cultural or social barriers that carbon funding will help overcome?
Test 3: Common Practice. This test is intended to determine whether or not a project is truly above and beyond “business as usual”. If a practice is widely employed in a field, it is not considered additional.
Key Question:Is the project, technology or practice commonly employed in the field or industry?
Other Key Additionality points:
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 proforma financial analysis showing both the with and without project case.
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.
"Future Requirement" : Another essential offset project element related to additionality is The Initiative’s requirement that projects submitted through Window #2 are implemented in the future. This means that project activities cannot start until Emission Reduction Purchase Agreements (offset contracts) are signed.
Guidance for Developing a Baseline
The baseline provides a clear understanding of the greenhouse gas emissions that would occur without an offset project being put into place. Often referred to as the "business as usual" case, a baseline is the existing or projected greenhouse gas emissions in the absence of the project. The quantity of offsets generated by a project is the difference between the "with-project" emissions baseline, and the "without-project" emissions baseline.
The baseline methodology must explain the most likely "without-project" scenario. In an effort to reduce the project preparation costs for Phase I project applicants, the Initiative does not require an extensive baseline study be performed for each project. Instead, the Initiative requires project applicants to develop their own project baseline using best available data with the understanding there may be a degree of uncertainty involved. Final baseline development takes place in the later stages of the project selection process.
Information that can help support the presentation of a project baseline:
Experiences from similar projects. For example, if a particular inefficient technology is the industry standard it can be used as the baseline case.
Studies or surveys that demonstrate that the project differs from prevailing practice.
Communications or minutes from meetings from the developer indicating that the baseline case is the most likely scenario for the project.
Independent expert assessments.
Clearly stated references for all data and assumptions used in the baseline.
Other Resources on Additionality and Baselines
The Greenhouse Gas Protocol: This collaboration between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) has created a variety of resources for project developers.
The Project Quantification Standard (.pdf) is the result of the GHG Protocol’s collaborative effort to develop standards for carbon offset projects. This Document contains guidance on how to perform a barriers test as well as resources for baseline development and carbon offset quantification.
Prototype Carbon Fund: The World Bank’s Prototype Carbon Fund is one of the world’s largest buyers of carbon offsets. The Project section of their Website contains information on the carbon offset standards and measures used for each of their projects.
Clean Development Mechanism (CDM): Part of the Kyoto Protocol, this body reviews and approves project based offsets located in developing countries.
This link contains project-specific information on baselines and monitoring and verification.
The CDM website also has a helpful guide (.pdf) on how to assess additionality (note: The Initiative does not require a project’s additionality presentation to be as detailed as is required in this document).
OECD Framework for Baseline Development: This report (.pdf) by the Organization of Economic Development (OECD) describes the main approaches and issues involved in developing a baseline.
