By Waseem Razzaq Khan
(Part 1)
In the rapidly evolving landscape of climate change mitigation, carbon markets have emerged as a potential solution to reduce greenhouse gas emissions. However, a critical concept known as “additionality” is now at the forefront of discussions among climate experts, policymakers, and market participants. This principle serves as the litmus test for the credibility and impact of carbon crediting projects. Additionality, in the context of carbon markets, requires that emission reductions claimed by crediting projects must be genuinely additional to what would have occurred without the project.
Additionality ensures that we are not simply paying for business as usual, but driving genuine, surplus reductions in greenhouse gas emissions. It is crucial to evaluate additionality from both the regulatory and financial perspectives.
Regulatory additionality requires that only emission reduction in excess of what’s required regulations (laws, by-rules, industry certification requirements, etc.) is eligible for credit. Financial additionality exists when a project would not have happened without the funding from carbon offsets.
It is important to seek the expert opinion regarding this matter.
Dr. Jane Koh, the director of Southridge Malaysia, states
“Additionality is the fundamental of carbon crediting mechanism. Without adhering to stringent additionality requirement, a project cannot deliver the emission reduction benefits that its carbon credit buyers pay for.”
Dr. Jane Koh, Director; Southridge Malaysia Sdn Bhd
According to Climate Finance Analytics, Carbon Offset/Carbon Credit Market Size was valued at USD 410.5 Billion in 2022. The Carbon Offset/Carbon Credit market industry is projected to grow from USD 541.8 Billion in 2023 to USD 4994.3 Billion by 2032, exhibiting a compound yearly growth rate (CAGR) of 32.0% during the forecast period (2024 – 2032). Increased global awareness and commitment to combat climate change and regulatory and policy support are the key market drivers enhancing growth of the market Source: https://www.marketresearchfuture.com/reports/carbon-offset-carbon-credit-market-12447. Following figure is showing Carbon Offset Market trends.
Additionality in Action: A Tale of Two Projects
To illustrate the concept, let’s consider two contrasting examples:
1.The Amazon Reforestation Project: This initiative, deemed additional, involves planting native trees and implementing sustainable forest management practices in a region with a history of logging activities. Without carbon offset funding, economic pressures would likely lead to continued deforestation. The funds from carbon credits make forest conservation economically viable, resulting in a net reduction in carbon emissions.
2.Solar City USA: Considered non-additional, this project involves installing solar panels on buildings in a city where government incentives already make solar energy projects economically feasible. The project might have proceeded even without carbon offset funding due to favorable economic conditions for renewable energy adoption. The carbon credits, in this scenario, may not have been the deciding factor for the project’s implementation, making it non-additional. Following is the flowchart of the additionality determination procedure.
The Challenge of Determining Additionality
While the concept of additionality is straightforward, determining it in practice is far from simple. The main challenge: We’re essentially trying to account for an offsetting activity in a counterfactual reality that cannot be observed directly. It requires a precise definition of how much emissions would be emitted without the implementation of the project.
To address this complexity, additionality is primarily determined based on several factors:
1.Emission Baselines: Establishes a baseline scenario against which the project’s emissions reductions are compared.
2.Dynamic Baseline: Considers the evolving nature of business-as-usual scenarios over time.
3.Common Practice Test: Compares the project’s emissions intensity to similar projects or activities in the region.
4.Financial Additionality: Examines whether the project is viable without carbon credit revenue.
5.Technology Demonstration: Assesses if the project introduces innovative, less carbon-intensive technologies.
6.Regulatory Additionality: Assesses whether the project includes activities or scopes that is more than mandated by laws.
The Importance of Rigorous Additionality Standards
The complexity of additionality assessment has led to calls for increased transparency and stricter guidelines. The stakes are incredibly high. If we get additionality wrong, we risk creating a false sense of progress in our fight against climate change. Recent studies have raised concerns about the additionality of some carbon offset projects. A 2020 study published in “Climate Policy” found that a significant portion of forest carbon offsets in California’s cap-and-trade program may not represent additional carbon sequestration. However, proponents of carbon markets argue that these challenges can be overcome with improved methodologies and oversight. “We need to refine our approaches, not abandon the concept altogether. Well-designed carbon markets with robust additionality requirements can play a crucial role in channeling funds to genuine emission reduction projects.
The Future of Additionality in Carbon Markets
As the world grapples with the urgent need to reduce greenhouse gas emissions, the concept of additionality in carbon markets will likely remain a topic of intense debate and scrutiny. The United Nations Climate Change Conference (COP29) is expecting to address some of these challenges, particularly in the context of Article 6 of the Paris Agreement, which deals with international carbon markets. Emerging technologies may also play a role in improving additionality assessments. Satellite imagery, artificial intelligence, and blockchain are being explored as tools to enhance monitoring, reporting, and verification of carbon offset projects. Additionality isn’t just a technical term, it is the key to ensuring that every dollar spent on carbon offsets contributes to real climate action. As we move forward, it must remain at the forefront of our efforts to combat climate change, aligning carbon markets with the overarching objective of mitigating climate change through credible emission reduction initiatives. As the global community continues to grapple with the climate crisis, the principle of additionality will undoubtedly play a crucial role in shaping the future of carbon markets and, by extension, our collective efforts to create a more sustainable world.
The views expressed here are those of the writer and do not necessarily represent the views of the New Sarawak Tribune.
