Materiality

Materiality standards define which errors have to be corrected and which can be ignored because they are too insignificant when calculating the amount of offset credits a project receives. In principle CDM Watch agrees with having rules on materiality because it does not make sense for projects to spend lots of money paying their auditor to rectify an error that is truly insignificant. Moreover, not having materiality standards in place puts small projects that need the additional financial support of the CDM at risk. Truly additional projects may not be able to afford such stringency whereas non-additional projects will on average have an easier time absorbing such costs. In that sense, having materiality rules may support truly additional projects. Yet of course the question is where to place the thresholds that define if an error irrelevant or significant. The materiality thresholds approved in Durban at COP17 in December 2011 are too lenient and should be made more stringent to avoid compromising the environmental integrity of offsets. They were defined as the following percentages of the emission reductions or removals of a project:

  • 0.5% for projects getting more than 500,000 offsets per year
  • 1% for projects getting 300,000 to 500,000 offsets per year
  • 2% for large-scale project activities getting up to 300,000 offsets per year
  • 5% for small-scale project activities
  • 10% for micro-scale project activities.

CDM Watch submission on “The Issue of Materiality in the Clean Development Mechanism” (pdf-file, March 28, 2011)

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