Additionality testing differentiating between multinationals and local SMEs (Newsletter #4)

The EB will again tackle the assessment of additionality at its next meeting and will in particular discuss draft guidelines for objective demonstration and assessment of barriers. A barrier analysis requires demonstrating that barriers exist that would prevent the proposed project from being carried out if the project activity was not registered as a CDM activity.

The barrier analysis is highly subjective and many projects claim additionality based on barriers that are vague and not substantiated. The current approach has failed to distinguish additional from non-additional projects. Many projects used general financial or policy risks, such as, for example, the “risk of currency exchange rate” or the “risk of possible future decrease of feed-in tariff”. Often barriers were very subjective: In some projects the management itself was declared unable to manage a project; others just stated that the “project would go bankrupt without CERs”. Many projects used “costs” as a barrier, sometimes without indicating the magnitude of the costs or ignoring revenues from the project

Suggested improvements in the proposed guidelines concern in particular the nature of the companies and entities involved in the financing and implementation of the project. This will make a certain degree of distinction between multinationals and small project developers. Therefore, the proposal by the Meth Panel goes in the right direction but did not yet achieve the CMP mandate of developing quantitative approaches to barriers.

Although CDM Watch does not believe that project by project additionality testing can be effectively improved, it welcomes new guidelines that differentiate multinationals and local SMEs acting as project developers. In the interim CDM Watch recommends adopting the draft guidelines for the demonstration and assessment of barriers.

Action to be taken by the Board:  CDM Watch recommends the Board to adopt the proposed guidelines for inclusion in the VVM and to request the Meth Panel to continue its work on developing quantifiable approaches on a methodology-by-methodology basis.