What Makes a High-Quality Carbon Offset?

How Carbon Crediting Programs Address Additionality

Carbon crediting programs have developed two general approaches to determining the additionality of a proposed project: “project-specific” and “standardized.” Each of these approaches has strengths and weaknesses.

Project-specific approaches rely on an analysis of an individual project’s characteristics and circumstances to determine whether it is additional. For example, they may involve:

  • A demonstration that the proposed project activity is not legally required (or that non-enforcement of the legal requirements is widespread); and
  • An “investment analysis” of whether the project is financially attractive in the absence of carbon credit revenues; and/or
  • A “barriers analysis” demonstrating that at least one alternative to the project would not be prevented by (non-financial) implementation barriers (e.g., social, institutional, or technical barriers);[1] and
  • A “common practice analysis” demonstrating that the proposed project is not common practice or is distinct from similar types of activities that are common practice.

Project-specific approaches can be effective when applied rigorously but can also be time-consuming. Moreover, they often require subjective judgments (such as the evaluation of financial parameters or the identification of barriers) and strongly hinge on assumptions about the future (such as fuel prices for the next 7 years). It is often challenging for carbon crediting program staff and verifiers to judge whether project developers are biasing these assumptions in their favor. Notwithstanding these concerns, project-specific approaches are applied to most projects under most carbon crediting programs. The main exceptions are the Climate Action Reserve (CAR) and certain regulatory carbon crediting programs in North America (e.g., in California, Washington, Quebec), which rely exclusively on standardized approaches.

“Standardized” approaches to determining additionality were developed in response to the perceived shortcomings of project-specific approaches. A standardized approach evaluates projects against a set of more objective and pre-established eligibility criteria (e.g., performance benchmarks) that—in principle—distinguish additional from non-additional projects.[2] Standardized approaches require in-depth technical and economic analyses for each type of project to establish these eligibility criteria. When developed correctly, such criteria will make it unlikely that non-additional projects are eligible. The main advantage of the standardized approach is that, once these eligibility criteria are established, they can reduce the administrative burdens and subjectivity of making additionality determinations. Their main drawback is that they may be imprecise in addressing the atypical characteristics of individual projects within a given project type. Of the major voluntary carbon crediting programs, CAR has been the primary adopter of standardized approaches, although other programs (e.g. VCS, CDM) apply them to some project types.

For many project types, it can be difficult to define objective criteria that reliably screen out non-additional proposed projects, while not mistakenly excluding truly additional projects. Consequently, standardized approaches are available for a smaller set of project types. For example, CAR, which uses a standardized approach, has adopted a smaller number of protocols (several of which are for the same project type, but tailored to different geographies and jurisdictions) compared to VCS and the Gold Standard, which incorporate over 200 project-specific methodologies/protocols applicable across the world.

In practice, carbon crediting programs can also apply approaches to determining additionality for some project types that blend elements of both project-specific and standardized methodologies.

Observations on Baselines and Additionality

No matter how quantitative and objective it appears, any additionality “test” or set of tests will create some number of false positives (i.e., proposed projects that are deemed additional despite the fact that they are not) and some number of false negatives (i.e., proposed projects that are deemed non-additional despite the fact that they are additional). The design of tests determines how much they will err on the side of false positives or false negatives. Deciding what is acceptable has to be determined through a political process. It is important to understand that while false positives and false negatives both impair economic efficiency, only false positives undermine the environmental integrity of carbon credits. In other words, it is the false positives – carbon credits issued to truly non-additional projects – that lead to increases in emissions and therefore hamper climate protection goals.

Additionality tests can be cumbersome, time-consuming, and expensive. They are, however, necessary because carbon credits from non-additional projects sold into the market will actually lead to an increase in the buyer’s emissions, with no corresponding decrease in emissions from the seller, and hence a net increase in GHG emissions to the atmosphere will result from the offset claim. If these projects are fully additional, then there will be a shift in emissions from the seller to the buyer and zero net change in global emissions. The costs associated with rigorous carbon crediting programs are not merely “administrative burden” or “transaction costs” but rather production costs. There are legitimate costs associated with assuring the product (i.e., the carbon credit) has real value.

[1] A barriers analysis should also address whether expected revenue from the sale of carbon credits is likely to enable the project developers to overcome the claimed barrier. A barrier may exist, but to be relevant it must be able to be surmounted using credit revenue.

[2] Standardized additionality approaches can use “positive lists” (lists of defined technologies or practices that are deemed additional without further evaluation) or a set of technical specifications and other criteria that a project must meet to be determined to be eligible (for example landfill gas collection and destruction, occurring at a sanitary landfill that is below a certain size threshold, where the gas collection is not required by law).