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Measuring additionality: a step-by-step guide
I’m not done with the background material on additionality, but I do want to start to discuss how additionality is measured in actual practice, as a prelude to focusing more specifically on the Tontitown project review.
One way you don’t measure additionality is by calling up a bunch of people and asking them whether they think a project is additional. The speed-dialing approach does make for sensational magazine quotes, but doesn’t make for sound environmental policy. The speed-dialing approach fails both because additionality claims require a reasonable amount of expertise to evaluate and because such claims need to rest on a credible, objective standard. Otherwise additionality becomes a fruitless mind-reading exercise open to constant dispute.
The basic idea is to establish a series of hurdles, or tests, that a project has to pass if it is to be deemed additional. The exact nature of the tests will vary depending on the project category, but within a category the tests should be explicit and tightly defined.
For example, the Kyoto Protocol’s Clean Development Mechanism (CDM) recognizes roughly 200 types (xls) of carbon reduction projects, ranging from wind farms to “methyl-ester biodiesel from sunflower on unused land.” Each of these project types needs to pass various additionality tests.
The CDM has also defined an overarching additionality framework that it charmingly calls “Tool for the demonstration and assessment of additionality.” Although about as thrilling as you’d expect for a United Nations document, the paper is short, and even has a nifty flowchart.
Boiled down into plain English, the CDM additionality framework consists of four steps. I’ll walk through these with the simplified example of measuring the additionality of a wind farm.
- Identification of alternatives. If no credible alternatives to the wind project exist, then it can’t be additional. Of course, there are plenty of alternatives to wind. For example, coal.
- Investment analysis. Are the alternatives more financially attractive than the proposed wind farm? If so, then the wind project is more likely to be additional, because, in the absence of offsets, rational developers will choose the more financially attractive option. Note that project profitability alone doesn’t automatically trigger a failing grade on an investment analysis. Rather, a project should be no less profitable than the alternatives.
- Barrier analysis (optional). This step is a bit of a catchall that allows other criteria to be brought to bear on the question of additionality. For example, a developing country might lack access to the necessary technical expertise to build a wind farm, a barrier that offsets could help overcome.
- Common practice analysis. A final common-sense additionality check looks at what actions industry participants typically take in the absence of offsets. Regardless of whether cheaper alternatives exist, if everyone was choosing wind over coal before offsets came along, there is good reason to suspect that offsets aren’t needed to stimulate the creation of new wind farms.
Not exactly the sexiest stuff in the world, but there you have it: a hands-on guide to additionality. This overview is based on the Kyoto CDM methodology, but the Chicago Climate Exchange protocols are comparable. We’ve posted both the CDM and CCX landfill gas flaring protocols for easy comparison.
Coming up: the specific additionality test we will apply to Tontitown.