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What is additionality in the voluntary carbon market?

By News

A carbon market without additionality is like a square-wheeled bike; a highly scalable concept, scuppered by a fundamental flaw. This term, speaking to the very heart of the voluntary carbon market, it is essential to understand.

Additionality refers to the extent to which carbon credits represent a reduction or avoidance of CO2e emissions from a project that would not have been possible without the carbon finance generated through credit sales. It is an absolutely central principle as – if credits are not additional – they cannot be used to offset a corresponding tonne of CO2e emitted by the buyer.

While we focus here upon the additionality of supply, we cannot forget another foundational basis of carbon markets. That is, that high-quality supply must always be accompanied by high integrity demand. Corporate buyers need to have credible net zero strategies and prioritise cutting emissions in their own value chains as a first step. Only then should carbon credits be used to compensate for any residual emissions released whilst companies continue to decarbonise.

If you are thinking of investing, make sure to read our guidance for embarking on a credible pathway to net zero and resources from the VCMI while you explore our flagship portfolio projects.

Why is additionality so important?

It almost goes without saying that to be effective, carbon credits must represent a genuine reduction or avoidance of emissions. That is, as outlined above, the first criteria of additionality. That’s not all; the underlying activity from which the carbon credit was produced cannot have taken place without carbon revenue. 

But why is this so important? Well, take for instance this example: A wind farm is developed in, say China, and is connected to the grid. This is normally taken as a good thing. For one, it means low carbon energy and secondly it releases considerably less emissions than a coal power plant. But due to the costs of renewable energy coming down in many countries, wind farms in places like China are now cost competitive with fossil fuel energy. This means they can get built just using revenues earned from electricity sales. In essence, this means that this wind farm would not require the subsidy from the sale of a carbon credit to get built. As the project would have occurred anyway, no ‘additional’ emissions prevented from entering the atmosphere for which a corresponding volume of carbon credits can be generated.

Indeed, if a project could facilitate emission reduction or avoidance without the revenue generated from carbon credits, then to what extent is their sale necessary? Yes, carbon funding could be directed to people and communities on the frontlines of climate change to drive investment in resilience-enhancing infrastructure. But under a non-additional scenario, a project is not delivering any climate benefits beyond what was achievable without carbon revenue. Therefore, any company purchasing and retiring credits from such a project could not make claims of positive environmental action in good faith. So while the financing of social projects is extremely necessary, it should be done through the sale of additional carbon credits, or via a different mechanism entirely.

The idea of additionality is essential for any company to understand, both in terms of the scale of decarbonisation required by 2030 to meet 2050 targets and to protect against the reputational damage caused if claims are revealed as greenwash.

How is additionality regulated?

With a culture of meticulous scrutiny surrounding corporate green claims, it’s hardly surprising that companies err on the side of caution when it comes to the voluntary carbon market. Indeed, coupling this reputational risk with the urgent need for sustained, large-scale decarbonisation, buyers naturally want to know that the credits they invest in correspond to a genuine reduction or avoidance of emissions. Thanks to significant labours from across the voluntary carbon market, there are now numerous regulatory bodies to whom business leaders can turn. 

An expanding pool of companies and organisations exist with the purpose of distinguishing between high- and low-quality carbon credits. You may have come across the phrase, ‘Verified emission reductions (VERs)’. This refers to a reduction in CO2e from a project that is independently verified against a third-party certification standard. This type of verification is increasingly expected and enforced by both buyers and suppliers.

Yet, determining additionality isn’t as simple as classifying a project as additional or not. Sylvera, for instance, consider additionality as a metric of risk rather than a state that is, or is not, achieved. In fact, framed as a scale, additionality is the factor weighted most heavily in the calculation of Sylvera’s ratings. 

Others debate whether additionality is purely determined financially. While for some the wind farm example given above would be a perfect illustration of the concept, some would say that such an approach to additionality does not take into account any other factors that could have prevented the project from operating. This is known as ‘common practice additionality’ and refers to a scenario in which a project is economically viable without the sale of carbon credits, but there are other social or political factors that make it infeasible.

With stringent additionality regulation, we can unlock the full potential offered by high-quality, carbon credits. Indeed, if projects are additional they can deliver verifiable, impactful co-benefits for biodiversity, communities and individual livelihoods.

What’s next for additionality? 

Constantly evolving and improving, the standards of additionality look set to continue to rise across the voluntary carbon market throughout 2023. The Integrity Council for the Voluntary Carbon Market (ICVCM) is working on guidance regarding the setting and enforcing of a definitive global threshold standards for high-quality carbon credits. Known as the Core Carbon Principles, it is set for launch in Q1 2023.

Yet whatever developments arrive, conducting your own due diligence remains of fundamental importance. So when considering the purchase of carbon credits, consider if the project would have been financially viable without the carbon finance, ask if it is common-place in the local area and investigate if regulation exists to enforce or incentivise the project. These questions should help you determine additionality and decide whether the emissions reductions could have taken place without carbon finance. 

 

High-quality credits can create impact immediately. Used wisely, they serve to compensate for currently unavoidable emissions along a company’s pathway to net-zero. We work to ensure that high-quality, additional, independently verified products are available in the market. To see our flagship portfolio projects, make sure to check out the rest of our website.

greenhouse gas emissions

Carbon footprint? How corporates can counterbalance emissions

By News

It is likely you have felt a personal responsibility to reduce your carbon footprint. Perhaps you are avoiding flying? Or maybe you have cut down your meat consumption? However small, our environmental choices are all essential forms of climate adaptation. But while individual action is extremely valuable, we must also get corporates on board to drive widespread climate action.

The term ‘carbon footprint’ refers to the amount of greenhouse gas emissions associated with a specific person, entity or organisation (1). For a company, activities spanning from the global shipment of goods to printing a sheet of A4 all contribute to its carbon footprint. Reducing emissions may seem like an impossible mountain to climb yet, encouragingly, recent years have marked a shift: many companies are on a mission to limit their carbon footprints. Reflecting on this transition, our CEO, Ana Haurie, said:

“Corporates are no longer just feeling the top-down pressure to incorporate sustainability strategies into their operations, but also now face substantial and sustained bottom-up social pressure, which has resulted in them taking real action on climate.”

In this fight against environmental change, words and pledges are not enough; corporates must actively take steps to counterbalance their carbon footprint if they are to create genuine, tangible benefits for both people and the planet. Here’s how they can do it.

Net zero: Now is the time

There is growing consensus that we must reach a state of net zero by 2050 following substantial actions to reduce and mitigate existing unavoidable emissions before 2030. At the global level, the IPCC provides a clear definition of net zero, stating that: ‘Emissions reach net zero when all greenhouse gases emitted from human activity are counteracted by greenhouse removals over a specified period’.  

To reach net zero by 2050, we need to have already cut global emissions by approximately 55% by 2030 and such reductions cannot be achieved without also tackling the nature loss crisis. The earth’s natural ecosystems absorb roughly half of all anthropogenic carbon emissions, yet extensive deforestation is undermining the capacity of nature to provide climate change mitigation. If the intrinsic value of nature were not enough reason to invest in its conservation, the reality is that without natural biodiversity, our climate change trajectory would be far worse. 

We are not yet close to counterbalancing our greenhouse gas emissions or to halting nature loss. At our current rate, temperature rise is set to reach 2.5°C above pre-industrial levels by 2050. Exceeding the 1.5°C limit agreed in Paris will likely initiate catastrophic positive feedback loops that once begun, will further increase global temperatures. Such threats including sea level rise, melting permafrost and more frequent, severe extreme weather events, underline the urgency with which we must act. Now is the time for corporate commitment net zero.

Counterbalance: The corporate responsibility

At a corporate level, net zero is less clear cut and can mean different things for different industries. However, for most companies, net zero is an end-state in which it has reduced its own internal – scope one and two – emissions and its product -scope three – emissions as much as possible.  

It’s clear we have no time to lose. We do not have the luxury to wait for new removal technologies still undergoing development. Instead, companies must deploy every tool currently at their disposal to achieve emission reduction goals. One resource already in our collective armouries are carbon credits. Representing either the permanent removal of a tonne of CO2 from the atmosphere, or the avoidance of one tonne of CO2 being emitted, verified carbon credits are proven to be an effective way to finance the protection of natural ecosystems while also enabling companies to achieve ambitious climate goals.

For this, nature-based credits hold particularly great potential. These solutions work with nature to address the climate crisis through projects such as forest conservation, soil restoration and blue carbon initiatives which not only sequester carbon from the atmosphere, but simultaneously protect nature and biodiversity. 

When engaged with responsibly (more on this below), the voluntary carbon market is an effective tool for the acceleration of climate mitigation efforts. Let’s be clear, carbon credits form just one part of the climate solutions, but we see the scaling of the voluntary carbon credit market – and nature-based climate solutions in particular – as a prerequisite for a credible and ultimately successful journey to net zero.

How does this work in practice?

First of all, any company looking to work towards 2030 and 2050 targets should embark on a ‘pathway to net zero’. This refers to the plan a company must execute to reach the end-state of net zero emissions in a specified timeframe. Carbon credits must not be used in isolation, they need to be part of this transition pathway (see graph below). Typically, this involves a detailed account of how emission reductions will be achieved, accompanied by firm interim targets for when these reductions should be achieved. In fact, setting and meeting ambitious interim milestones could be said to be of greater importance for climate action than the end-goal of net zero. See Steps 1 and 2 on the graph below.

How to counterbalance your carbon footprint using high-quality carbon credits

Once a company has committed to a net zero pathway, it should start to cut emissions from across its value chain inline with the mitigation hierarchy. However, even after the hierarchy has been followed, it is likely that a company will still be producing some unavoidable emissions. Step 3 of the chart outlines the most appropriate action for counterbalancing hard-to-abate, residual emissions. In this scenario, purchasing a corresponding volume of avoidance credits can provide a practical, short-term solution. Generated from projects such as forest conservation or clean cooking, avoidance credits help finance climate solutions and reverse nature loss. While this is vital in the near term, these credits cannot be an end state because a tonne of emitted carbon has not been removed from the atmosphere; a separate tonne has been avoided.

Avoidance and removal

This is why a company should transition over time to increase its purchase of removal credits (i.e generated when carbon dioxide is sequestered from the atmosphere and stored either biologically in trees or soil, or geologically through direct air capture and storage). Throughout this process, a company should be continually reviewing emissions across its value chain to see if they can be cut further. 

As an impact-driven carbon finance company, our high-quality carbon credits allow corporations and financial institutions to mitigate their environmental impact while channelling private capital into predominantly nature-based climate solutions. Our flagship portfolio offers a balance of avoidance and removals projects which enable companies to follow a high-integrity pathway to net zero and counterbalance their carbon footprint. To learn more about our work and our portfolio, be sure to follow this link.

(1) https://www.britannica.com/science/carbon-footprint