What Makes a High-Quality Carbon Offset?

How Carbon Offset Programs Address Additionality

Carbon offset programs have developed two main approaches to determining the additionality of a 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 wide-spread); and
  • An “investment analysis” of whether the project is financially attractive in the absence of offset 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); 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 in the evaluation of financial parameters or the identification of barriers) and strongly hinge on uncertain assumptions about the future (such as fuel prices). It is often challenging for offset program staff and verifiers to judge whether project developers are biasing these assumptions in their favor. All voluntary carbon offset programs rely heavily on project-specific approaches, except for the Climate Action Reserve (CAR).

“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 pre-determined eligibility criteria (e.g., performance benchmarks that—in principle—distinguish additional from non-additional projects).[1] Standardized approaches require upfront analysis to establish these eligibility criteria. Their main advantages are that they can reduce the administrative burdens of making additionality determinations, and they reduce elements of subjectivity in assessing projects. Their main drawback is that they may be imprecise in distinguishing additional and non-additional projects. Of the major voluntary carbon offset programs, the CAR has been the primary adopter of standardized approaches, although other programs (e.g. VCS) apply them to some project types.

For many project types, it can be difficult to define objective criteria that reliably screen out non-additional 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 less than 20 protocols, in contrast to the VCS and Gold Standard, which incorporate over 200 project-specific methodologies/protocols.

Observations on Baselines and Additionality

No matter how quantitative and objective it appears, any “test” for additionality will create some number of false positives (i.e., projects that appear additional despite the fact that they are not) and some number of false negatives (i.e., projects that appear non-additional despite the fact that they are). The design of the test determines if it will err on the side of false positives or false negatives. Deciding which is more 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 offsets. In other words, it is the false positives – offsets from 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 offset 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. 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 offset programs are not merely “administrative burden” or “transaction costs” but rather production costs. They are legitimate costs associated with assuring the product has real value.

[1] 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 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, etc.).