When are carbon credits additional

Wednesday, 08 May 2024

Carbon credits are a widely used tool by companies to lower emissions, but to ensure legitimate climate impact, carbon credits must meet specific quality criteria. Among this criteria, additionality is widely considered to be the most critical cornerstone. This blog post dives into the concept of additionality as it is applied in carbon markets and the nuances that carbon credit buyers can consider when assessing a carbon project’s additionality.

What is additionality in carbon credits

Additionality refers to whether the income generated from carbon credits played a decisive role in the implementation of the carbon project or the programme. This definition is consistent with the Integrity Council for the Voluntary Carbon Market (ICVCM)'s Core Carbon Principles related to additionality, which states that a project is only additional if it "would not have occurred in the absence of the incentive created by carbon credit revenues.” 

Consider the example of large-scale renewable energy projects involving hydropower, wind and solar PV sources. Implementing these projects may be economically viable without the carbon credits, as the main income from the sale of electricity may be sufficient to ensure the project is financially feasible, i.e. the project is an example of a business-as-usual project. This means the project can be developed without carbon credits and the project is non-additional.  

Measuring carbon credit additionality

Additionality is a nuanced component of greenhouse gas integrity for a carbon project, since it requires understanding the motives and context behind a carbon project’s development. A multi-faceted approach to assessment is often necessary in order to confidently establish a project’s additionality. Several ‘tests’ can be conducted to measure the likelihood that a carbon project is indeed additional: 

  1. Common practice. Common practice refers to whether a project type is already being implemented regularly in a given region. If a project introduces a technology or an innovation that is commonly being developed in the region, then it is common practice, and it is less likely to face implementation barriers. To support the case for additionality, a carbon project should satisfy a common practice test (i.e. the project activity must not be common practice in the project region). The level of adoption of a technology, i.e., the penetration rate, serves as a key indicator of prevailing practices within a specific region. 
  2. Regulation. If a project produces emission reductions that are legally required by a well-enforced government or other regulatory body, then it cannot be considered additional. Carbon credits are only additional when the emissions reductions surpass what is mandated by regulation - since emissions reductions required by law would have occurred regardless. It is important to check both regional and international regulations for carbon credit issuance. However, there can be laws that are not well enforced and a mandated activity may still be additional. 
  3. Project timeline (prior consideration). An important test for additionality is whether there was consideration of carbon revenue prior to the project’s implementation – evidence of this ‘prior consideration’ helps demonstrate that the project required carbon revenue in order to be developed. To measure prior consideration, one can assess supporting evidence, such as the project timeline, to confirm that the project developer took into account the income from carbon before pursuing the project. For example, if the project developer can show that consideration of carbon income occurred before major financial decisions, it indicates prior consideration, strengthening the argument that carbon income was a key consideration. 
  4. Financial impact (financial attractiveness, incentives). A project is more likely to be additional if it can prove that it needs the income from carbon credits to achieve a benchmark return on the project. This can be demonstrated through an investment analysis which confirms that the carbon income plays a decisive role in project implementation. 

Additionality is very hard to prove because one needs to know the motivation for a project. The best one can do to assess additionality is to look at a range of circumstantial evidence. Therefore, the more evidence a carbon project provides on each of the factors outlined above, the more likely it is to be additional. Several organizations, known as carbon credit ratings agencies, have begun to provide independent assessments of the risks to a carbon project’s greenhouse gas integrity – including the risks to additionality. Some carbon credit brokers also assess the additionality of the carbon credits that they trade. 

Ensuring carbon credit additionality

Assurances of a project’s additionality are required for all carbon projects. In order for a project to be accredited on a major carbon registry, it must adhere to a methodology. Typically, these have been reviewed by experts and various stakeholders. Methodologies should require that projects demonstrate additionality in order to receive carbon credits. For instance, most projects that follow the Clean Development Mechanism’s (CDM’s) methodologies must submit evidence that they considered carbon revenue before beginning the project, that they are not common practice, are not legally required, and that they are not financially attractive without carbon revenue or that they face barriers that can be alleviated by the carbon income. 

Some project types may be exempted from demonstrating additionality at a project level if they fit specific criteria that make them “automatically additional.” For instance, if a solar energy project is the “first of its kind” in a region, then it is exempt from the requirements for demonstrating additionality. According to the CDM methodology, this project is likely to face significant barriers because it is trailblazing the technology in the region.

Furthermore, the Integrity Council for the Voluntary Carbon Market (ICVCM) has developed a set of guidelines known as the Core Carbon Principles (CCPs), which assess the likelihood that carbon crediting standards and methodologies will meet a minimum benchmark for greenhouse gas integrity. If a project is developed using a CCP-approved methodology, then it is considered likely to meet a higher level of carbon credit quality. The Core Carbon Principles involve an assessment of the project type’s additionality among other factors. If a project type is CCP-approved, it is considered more likely to be additional.*

While the methodologies and ICVCM provide a minimum bar for additionality checks, there is still a range of uncertainty when it comes to individual projects. To better understand the risks to a project’s additionality claims, an independent review of individual project’s circumstances is required.

Carbon credit rating agencies, like Calyx Global, use several tools to assess a carbon project’s additionality claim. The figure below indicates the outcome of additionality rankings for projects assessed by us. We rate each project individually for additionality, over-crediting, permanence and overlapping claims.  

The distribution represents the level of additionality risk for 500+ carbon projects. This information is available on the Calyx Global Platform. As the figure above shows, the additionality risks vary significantly from project to project. Note that this distribution may not be representative of the average risk distribution across the carbon market, because we rate projects that we expect to have a higher integrity compared to the rest of the market (in other words, our distribution is likely to favor projects that are more additional compared to the carbon market as a whole). 

Project types that are exempted from demonstrating additionality by the methodology are still independently reviewed by us. In our review, we double-check the specific conditions surrounding the project’s development to ensure that we agree they are additional. 

It is also worth noting that different project types are more likely to have different additionality rankings, although a project-level analysis is important to confirm any carbon credit claim with confidence. For example, afforestation / reforestation projects tend to have a large degree of variance in additionality, while the destruction of ozone depleting substances (ODS) tends towards a higher likelihood of additionality. Nevertheless, additionality should be assessed for every project individually before purchasing a carbon credit. 

Why does additionality matter?

Additionality holds significant importance for the carbon credit buyer, the carbon credit project and the planet. This is because a “business as usual” carbon mitigation activity does not change the concentration of greenhouse gases in the atmosphere.

For most buyers, it is important to ensure that they are paying for authentic emission reductions that have a real impact on the climate. The buyer faces reputational risk associated with buying non-credible credits. Several reputable companies have fallen under public scrutiny for buying carbon credits from projects where the integrity of the credits was questioned by the scientific community and the media. Furthermore, if a company uses a non-additional carbon credit to “offset” its own emissions, the overall level of GHG emissions remains the same or even increases in the atmosphere.

Conversely, carbon projects rely on the sale of their credits to sustain their operations. By ensuring additionality, a project developer can confidently establish the genuine impact of a project’s emission reduction efforts. For both parties, it is essential that additionality is confidently established. 

How to choose carbon credits that are additional

Oftentimes, in order to assess the risks to additionality for an emission reduction claim, an independent review of the project’s circumstances is required. This review should consider the factors listed above (i.e. common practice, regulation, prior consideration, financial analysis). Such a review can be done by an educated buyer or broker, or by an independent carbon credit ratings agency or consultant. 

Calyx Global provides carbon credit ratings to help buyers make more informed decisions, according to independent reviews built upon a peer-reviewed ratings framework and expert insight. Additionality is a core component of the quality of a carbon credit. Other factors that must be considered include risks to over-estimating emissions reductions, risks of overlapping claims and risks of non-permanence. Read more about the Calyx Global approach to assessing carbon credit quality in “The Calyx Global Approach to GHG Ratings.” 

*Note that at the time of this blog’s publication, no project types have been CCP-approved. However, the ICVCM has released a list of projects that are likely to receive the CCP label. These projects are designated as “internal assessment.” 

About the author

Calyx Global

This article includes insights and input from multiple experts in Calyx Global.