Carbon Market Watch

For fair and effective climate protection.

Fresh food for thought needed to control additionality related to national policies (E+/E-) (Newsletter #8)

24 May 2010

In 2009, several wind projects in China were rejected because they were found to be non-additional[1]. The underlying argument assumed that feed-in tariffs were lowered compared to historic subsidies so to ensure that the projects qualify for the CDM, thus, making them non-additional.
Approving CDM credits to non-additional technologies does damage in two ways: it creates CERs which do not represent real emissions reductions, and it creates a perverse incentive for countries to reduce their support for these technologies. Therefore, CDM projects should be additional and avoid perverse incentives for governments (i.e. avoid giving comparative advantage to more emissions intensive technologies or fuels, so called E+ policies). But there is an inherent conflict between these two objectives. By ignoring so called E- policies (giving comparative advantage to less emissions intensive technologies or fuels), perverse incentives are avoided but many projects get registered which would be implemented anyhow and are therefore non-additional. Considering E+ policies would avoid the registration of non-additional projects but create perverse incentives. This dilemma was already extensively discussed by the Board in the past but the issue remains yet to be resolved.

Further to the adoption of very vague guidelines on the application of E+/E- policies in the assessment of additionality during the last Board meeting, an updated version will again be considered during this 54th meeting. However, the draft as suggested by the secretariat remains vague and does not provide any substantive recommendation as to how feed-in tariffs should be dealt with in the additionality tool or what kind of information is required to prove E-, or E+ policy.

Action to be taken by the Board: while a decision on this matter is urgently needed, diverging views have so far prevented Board members from producing any substantial guidelines on how to avoid non-additional credits. Therefore, the Board shall finally open up this topic and lodge a call for public input in order to make the progress needed.