Additionality and the CDM

The number of Clean Development Mechanism projects registered has expanded rapidly this year, with close to 3,000 projects currently in the pipeline. However, there are growing concerns regarding the additionality requirement for projects, both that it is somewhat ineffective in its current form and that it effectively excludes the type of small-scale projects that reap the best development dividends.

Yesterday’s meeting in Bali featured a side conference on carbon finance. A session titled “Additionality: never-ending story or workable solutions” provided a remarkably frank discussion of the shortcomings of the current additionality test for CDM projects and potential ways to reform the system. Participants acknowledged that the current CDM additionality test has some substantive problems. Lex de Jonge from the CDM Executive Board discussed how barrier analysis alone is not always an effective screen for additionality, and that some sort of financial additionality should also be required. Alexi Sankovski from ICF International argued that between 30 and 70% of current CDM project are probably not actually additional. Lambert Schneider from the Oko-Institut pointed out that the current system is highly subjective, often awarding additionality to those projects that tell the best story. Belinda Kinkead from Ecosecurities explained how there is often a tradeoff between the financial security needed to obtain loans and the insecurity necessary to prove that the marginal impact of CER sales can make a difference in the financial viability of the project. She pointed out that calls to tighten additionality criteria would impose even higher transaction cost and pose a greater barrier to the effective development of small-scale projects.

Despite their agreements on the failings of the current additionality system, participants differed on possible remedies. In addition to calling for more financial additionality tests, Jonge suggested that renewable energy sector projects in least developed countries could be granted a blanket additionality, removing the need for project-by-project approval. Sankovski expanded this suggestion, argueing that certain classes of CDM projects such as renewables, industrial gases, and others should be granted blanket additionality in all countries.

Schneider warned that watering down additionality requirements would ultimately weaken efforts to tackle climate change, given that non-additional CERs effectively decrease the amount of actual emissions reductions required under the Kyoto Framework. He argued that the CDM additionality test needs to incorporate more objective measures, and suggested a benchmarking approach for specific sectors as an example of an effective test.

Most people at the meeting in Bali agree that the CDM should be considerably expanded in the future. A number of proposals for programmatic CDM, policy CDM, and sectoral CDM are being discussed. While it is unlikely that any firm decisions will be made on these methodologies at this point in time, there is a growing realization that the current project-by-project approach to additionality and certification should not be the only mechanism available in the future.