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.