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Nikhil

ADDITIONALITY

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ADDITIONALITY Concept

CERS

The concept of additionality addresses the question of whether the project would have happened anyway, even in the absence of revenue from carbon 5/2/12 credits. Only carbon credits from

ADDITIONALITY??????? ????????

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PHYSICAL PROJECT DEVELOPMENT

PROJECT IDEA

Additionality view of prevalence

FEASIBILITY STUDY FINANCI NG CONSTRUC TION OPERATI ON

CDM / JI DEVELOPMENT
MAKE PDD VALIDA TE REGIST ER MONIT OR VERI FY LETTER OF APPROVAL ISSUE CERs

USE OR MAKE METHODOLOGY TEST ADDITIONALITY STAKEHOLDER COMMENTS

STAKEHOLDER COMMENTS

COMMERCIAL DEVELOPMENT
PREPARE PIN and TERM SHEET SELECT BUYER GENERATE CERs NEGOTIATE ERPA SELECT BUYER DELIVER CERs SELL AND DELIVER

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Baseline and project scenario

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A CDM project costs money. Is it worth the effort?

Pre-Registration CDM Costs Post-Registration CDM Costs 53,0 00

1 CER

108 0

U S $

164,5 00

Indicative CDM Cost Profile For A Typical CDM Assumes a 10-year Project project.
Recurrent costs discounted at 3% annual rate to express in present-value terms. Registration costs, Administration Fee and Adaptation Fund Levy not included.

111,5 00 77,5 00 67,5 00 51,0 00 13,0 00 P I N 10,0 00 16,5 00 Initial Monitori ng Validat ion

34,0 00

Ongoing Verificat ion By DOE Ongoing Annual Monitoring

38,0 00

P D D

Summarizing.(the concept)

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How to interpret additionality

Environmental additionality only

Environmental and financial additionality

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"How many CERs should a project generate?" Or alternatively, "What

Additionality scheme

Step 1. identify baseline alternatives and show they are in compliance. Step 2. show the proposed project activity is less attractive w/o CDM Step 3. explain the proposed project activity faces barriers Step 4. discuss prevalence of similar activities Step 5. explain it relieves existing financial hurdles or other barriers if the

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TOOL..

After a phase of uncertainty for large projects the EB in October 2004 defined a Tool for the demonstration and assessment of additionality, 2004) which is separate from the baseline methodologies, meaning that even if the baseline scenario has higher emissions than the project scenario, it has to be checked whether the project passes the additionality test. mandatory

(UNFCCC

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Step 0

Step 1

Step 2

Step 3

Step 4

Step 5

Preliminary screening based on the starting date of the project activity Evidence that the incentive from the CDM was seriously considered in the decision to proceed with the project activity. Identification of alternatives to the project activity consistent with current laws and regulatio i. Define the alternatives to the project activity ii. Enforce applicable laws and regulations . Investment analysis i. Determine appropriate analysis method ii. Option I. Apply simple cost analysis iii. Option II. Apply investment comparison analysis iv. Option III. Apply benchmark analysis Steps v. Calculation and comparison of financial indicators vi. Sensitivity analysis for tool . Barrier analysis i. Identify barriers that would prevent the implementation of proposed project activity . Common practice analysis i. Analyze other activities similar to the proposed project activity ii. Discuss any similar options that may be occurring . Impact of CDM registration The projects that use this tool have to follow these steps sequentially to prove the additionality of the proposed project.

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Demonstrating additionality investment comparison analysis

Choose an appropriate financial indicator, such as IRR, NPV or benefitcost ratio, to demonstrate additionality

Break-even point

Project without carbon element

Project with carbon element

Carbon revenue makes the project worthwhile Project without carbon revenue is unprofitable
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Revenue / NPV / IRR

Demonstrating additionality benchmark analysis

Choose an appropriate financial indicator and compare it with a relevant benchmark value: e.g. required return on capital or internal company benchmark

Investment threshold

Project without carbon element

Project with carbon element

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Carbon revenue makes the project attractive relative to investment Project alternatives without carbon revenue is profitable but not 1717 sufficiently

Revenue / NPV / IRR

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APPROACHES TO BASELINE COMPARISON

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A DSM project that switches to more energy efficient lighting practices can be compared to the currently installed system

Historical bottom-up baselines:

Forward looking:
If new coal plants are already planned in a developing country, they could serve as the baseline for less carbon-intensive power generation projects implemented through the CDM

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Dis-advantages
carbon

credit boosters: conceded that no Indian project could meet the "additionality in investment criteria" to be eligible for carbon credits. don't finance truly additional projects, since the risks with the CDM registration process are too high.

Banks

The

project developer pays the validator to recommend the project to the CDM EB, it is no surprise that often validations are positive, even when the 5/2/12

Not additionality
Carbon 1. 2. 3.

projects that yield

strong financial returns even in the absence of revenue from carbon credits that are compelled by regulations that represent common practice in an industry

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