Strong guidance to improve additionality testing is needed (Newsletter #3)

During their next meeting, the Board will finally have the chance to improve additionality testing when it will consider new guidance to the barrier test “first-of-its-kind” and the “common practice analysis”. After a lengthy struggle between the European and Chinese/Indian members of the Executive Board who did not agree on the stringency of the criteria, this important item will finally be discussed. Until more fundamental changes are made to the structure of the CDM, it will be important to make additionality testing procedures both more conservative, and more objective and predictable.

The current approaches for demonstrating additionality mostly use three elements:

  • A barrier analysis to demonstrate that barriers exist which would prevent the proposed project
  • An investment analysis to demonstrate that the proposed project activity is economically less attractive than another alternative
  • A common practice analysis which requires an assessment of the extent to which the proposed project type has already been deployed.

These approach have often been criticised as intention-based and highly subjective by many stakeholders. The International Emissions Trading Association (IETA) stated in a position paper for COP/MOP1: “Business perception is that in its current form the test for additionality (…) exposes every project to a highly subjective assessment of its CDM eligibility and allows for second-guessing by the EB”. Similarly, CDM expert Lambert Schneider evaluated in a report 93 CDM projects and found that for a significant number of projects the additionality seems unlikely or questionable. In a Delphi survey, conducted in 2007, 71% of the participants agreed with the statement that “many CDM projects would also be implemented without registration under the CDM” and even 86% of the participants affirmed that “in many cases, carbon revenues are the icing on the cake, but are not decisive for the investment decision”.

Guidance on the barrier “first-of-its-kind”

A project activity is assumed to be additional if no similar project has been implemented previously in a certain geographical area. If a project activity is “first-of-its-kind”, no additional assessment steps are undertaken to confirm additionality. Considering that project activities that deemed to be “first-of-its-kind” pass the additionality test by default, the application of this barrier is highly problematic. Sometimes the project technology was defined so narrowly that the project is declared to be the “first of its kind” although many similar plants have already been constructed. In many cases, no evidence for the barriers was mentioned or provided in the project design documents.

Action to be taken by the Board: In line with the recommendation in the Note on the barrier “first-of-its-kind” by the Meth Panel, CDM Watch recommends that in the absence of a specific definition in an approved baseline and monitoring methodology, the barrier “first-of-its-kind” shall only apply if:

  • The project technology has not been in commercial operation in the host country; and
  • The project technology has not been proposed in another CDM project activity in the host country and published in the CDM-PDD by a DOE for public comments.
  • Other CDM project activities should be included in this assessment, both registered and submitted for validation. The assessment should include all similar project activities in the host country.

Guidance on the common practice analysis

The common practice analysis is an important credibility check to demonstrate that the project is not common practice in the region or country in which it is being implemented. If a project activity is “first-of-its-kind”, it is clear that implementation of the specific technology is not yet “common practice”. But similar problems as witnessed in the first-of-its kind-analysis appear in the application of the common practice analysis: The current additionality tools do not clearly define when a project activity should be regarded as common practice and no threshold for common practice is provided. Only a few methodologies specify when a project should be considered common practice. Moreover, the baseline methodologies do not provide a clear definition of what a comparable technology is. In some cases, project participants have defined their technology so narrowly that practically no or only a few other similar projects have been implemented – although the technology type (e.g. biomass cogeneration with high pressure boilers) is quite common in the country. At the same time, they define the comparison group very broadly (e.g. all power generation in the country) such that the project activity will automatically have a low penetration rate – independent of the fact whether the project activity is frequently implemented in similar circumstances.

The assessment of the common practice analysis by DOEs is particularly weak. The study “Is the CDM fulfilling its environmental and sustainable development objectives? An evaluation of the CDM and options for improvement” shows that in 32% of the projects that use the common practice analysis the validation report does not provide any information on it at all. In another 24% of the projects the information in the PDD is predominantly repeated without a clear statement that the information was checked and deemed plausible and credible by the DOE. A detailed assessment of the information provided in the PDD is only provided in 10% of the projects. This means that in more than half of the projects examined that applied the common practice analysis, the projects were registered even though independent information to support the analysis had not been presented or it was not clear if the information presented had been checked by the DOE.

Action to be taken by the Board:

In order to improve the environmental integrity of the CDM and to avoid gaming by arbitrary definitions of technologies, quantitative thresholds and a clear definition on similar technologies must be introduced. CDM Watch recommends the following guidance:

  • The EB should work on quantitative thresholds to define common practice for each methodology. For example, a project could be regarded as common practice if it has been implemented X times AND in Y% of the relevant cases.
  • If more than five projects using the same technology have been commercially in the host country without being submitted under the CDM, the project is common practice
  • Baseline and monitoring methodologies should clearly define the project technology and what is regarded as a similar technology
  • If a project activity has started commercial operation after the PDD is submitted to the DOE for validation, the situation when the CDM-PDD is published by the DOE for public comments should be applicable for the assessment
  • If a project activity has started commercial operation before the PDD is submitted to the DOE for validation, the situation when the commercial operation of the project activity has started should be applicable for the assessment
  • In the absence of a clear definition of the project technology in the baseline and monitoring methodology, all technologies to which the methodology is applicable should be regarded as similar technologies (see list of technologies).

For power generation from renewable sources, the following categorization of technologies to which a certain methodology applies, should be regarded as similar technologies:

–       Large hydro (> 15 MW)

–       Small hydro (1 MW < X ≤ 15 MW)

–       Micro hydro (< 1 MW)

–       Biomass gasification

–       Biogas combustion

–       Liquid biofuel combustion

–       Solid biomass combustion in low steam pressure (< 30 bar)

–       Solid biomass combustion in medium steam pressure (30 bar ≤ X < 60 bar)

–       Solid biomass combustion in high steam pressure (≥ 60 bar)

–       On-shore wind power (≤ 1.5 MW)

–       On-shore wind power (> 1.5 MW)

–       Off-shore wind power

–       Thermal solar power

–       Photovoltaic power

–       Geothermal energy