What Makes a High-Quality Carbon Offset?

Additionality

Short version: To preserve environmental integrity, carbon credits must come from projects that are “additional.” An additional project is one that would not have occurred without the incentive provided by carbon credit revenues.

Longer version:

Additionality is the property of a project being additional and is typically assessed once by a crediting program when a proposed project is submitted for approval and registration (i.e., ex ante).[1] A proposed project is additional if it would not have taken place without the expected revenue from selling carbon credits.

Additionality is determined by assessing whether the proposed project is distinct from its baseline scenario.[3] The baseline scenario is a prediction of the future behavior of the actors proposing, and affected by, a project’s activities in the absence of any carbon revenue incentives, holding all other factors constant.[3] In other words, what would happen without the expected revenue from selling issued credits? That scenario is the baseline.

The additionality of a project is essential for the quality of carbon credits. If credits are issued to projects that are not additional, then purchasing those credits instead of reducing one’s emissions will make climate change worse – because total emissions to the atmosphere would be lower if the purchaser had simply reduced their emissions.

Evaluating whether GHG projects and therefore the credits issued to them are additional can be deceptively difficult.[2] For example, sometimes a project’s activities are required by law. Landfill operators in California, for example, are required to install equipment that captures and destroys methane. In other cases, investments that reduce emissions will be made simply because they are profitable, without any consideration of the potential revenue from carbon credits. An investment in energy-saving lighting, for example, can pay for itself through avoided energy costs. Similarly, renewable energy technologies, like wind and solar, are often cost-competitive with fossil fuels without revenue from carbon credit sales. For a proposed project to be deemed additional means the expectation of selling carbon credits must play a decisive (“make or break”) role in the decision to implement it.

Additionality is a topic about which there is frequent misunderstanding. One commonly heard claim, for example, is that a project is additional if GHG emissions are lower than they would have been “in the absence of the project.” This framing is incorrect because the question of additionality asks whether or not a proposed project is the same as its baseline scenario. If we consider the baseline scenario to be the “absence of the project” then we have ignored the real possibility that the proposed project and baseline are the same (i.e., that the proposed project would have been undertaken even in the absence of carbon credit revenue). It is also common to hear discussion of different “kinds” of additionality, using terms like “financial additionality” or “regulatory additionality,” as if these are distinct concepts. The only definition of additionality relevant to credit quality is the one presented here. Legal and financial considerations come into play when making determinations about additionality but are not separate definitional categories for what it means for a proposed project to be “additional.”[3]

While additionality is the most essential criterion for assessing credit quality, its determination is inherently predictive. Carbon crediting programs must make binary determinations of additionality to decide the eligibility of proposed projects for crediting (i.e., a proposed GHG project is either additional or it is not). In practice, determining whether a proposed project is additional requires comparing it to a hypothetical scenario without revenue from the sale of carbon credits. Such a scenario must be established using educated predictions (e.g., informed by factors such as future fuel, timber, or electricity prices). The determination can also fall prey to “information asymmetry” where only a project developer can say whether the prospect of selling carbon credits was truly decisive. Regardless of the truth, every project developer has an incentive to argue that it was decisive to receive the revenue from carbon credits. Even though carbon crediting programs must still make a binary determination for administrative reasons, in light of these uncertainties, it is better to think of additionality in terms of risk: how likely is a project to be non-additional?

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[1] In most cases, additionality is assessed only once, when an activity is submitted to a crediting program for approval. Conceptually, one could think of some projects as becoming “non-additional” in the future – e.g., if, in the absence of carbon credit revenue, the same activity would have instead been implemented at a later point in time than proposed by the project developer. Typically, however, crediting programs address this possibility through reassessment of the activity’s baseline (effectively, ceasing credit issuance to the activity, because the activity and its baseline are determined to be identical at a future date) rather than formally determining that an existing project was never additional in the first place.

[2] See Trexler (2019).

[3] See Gillenwater (2011).