08
Apr
09

CDM and Addionality

I was working on getting some data on Biomass CDM projects. From a few numbers on IRR, I realized none of these projects would be investment worthy without earning from CDM/Carbon offsets.

That was a correct observation because I then found this fascinating condition/clause for CDM/carbon offsetting. Financial Additionality is necessary for carbon offsets. Which basically means you cannot gain carbon offsets for your renewable energy projects if you do not prove that without earnings from those offsets, the project would be unviable.

It did seem like a stupid clause to me at first, but then just later Sara and SustainableJohn explained, ‘Because to offset emissions in another country, you need to prove that the project would not have happened without CDM.  Otherwise, it’s not really offsetting, it’s just giving renewable projects in another country an added incentive to develop. It is proving that the project is beyond business as usual.  Additionality comes mainly in two forms: investment and barrier.  Investment additionality is most often used by proving that your project has an IRR lower than the industry benchmark, but that the IRR would be higher if extra  revenue from sale of carbon credits could be earned. Barrier additionality has more to do with technology availability/other policy or market barriers.’

Makes sense from the perspective of the developed countries looking to offset, but to me this is just another reason why I don’t like carbon offsets. The viability of the entire project depends on the price of the CERs and nobody is really gaining much in terms of revenues. Maximum IRR I’ve seen yet is 28.33% and avg is around 15.45%. These are really low.

Anyways, I haven’t got the time or energy to debate carbon credits. Maybe later.

I also found a good ebook on calculation of additionality, which now looks very useful for my project last sem on SROI. Go ahead and download it. http://www.englishpartnerships.co.uk/images/C799363E2FFF45B789F70168169EBEE8.pdf

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