Additionality: What it means & why it’s crucial in the fight against climate change
Before taking credit for offsetting carbon or reducing emissions, organisations need to ask: Would this have happened anyway?
I recently wrote a blog focusing on the benefits we often miss in standard cost-benefit analyses. On the flip side, many organisations are overestimating benefits, often because the impacts of their projects were not ‘additional’.
Additionality is a jargony mouthful, but it represents a key concept in efforts to fight climate change. Understanding additionality boils down to asking: What would have happened in the absence of this project? Organisations cannot truthfully claim to have offset carbon, or reduced emissions, if those offsets or reductions would have happened without their intervention.
It might seem obvious, but many evaluations do fall at this hurdle, and therefore claim impacts that were not actually additional – i.e. take credit for something that would have happened anyway. Economic research has started to shed light on the pervasiveness of this problem. Thankfully, researchers have also identified solutions. Through better programme and market design, we can get closer to achieving key climate goals.
Many projects in the world’s largest offset programme are not additional
In their research, Raphael Calel, Jonathan Colmer, Antoine Dechezleprêtre and Matthieu Glachant evaluate the Clean Development Mechanism (CDM), which is the world’s largest carbon offset programme and has supported renewable energy investments of US$ 90 billion. Specifically, they focus on subsidies through the CDM to the Indian wind power sector. Their findings are striking, and depressing.
They find that just over half of carbon offsets approved for CDM-registered wind projects in India are not additional, what they term 'BLIMPS' – Blatantly Inframarginal Projects. Even in this setting, where one might expect the CDM to be highly effective, projects that would have been built anyway have been subsidised. This completely undermines the offset mechanism.
Read their full article here: Do carbon offsets work? Evidence from the world’s largest offset programme
Accounting for additionality: Market and programme designs that actually reduce emissions
Thankfully, economists have identified solutions to this problem, which can ensure projects and markets are additional, and thus closer to achieving their climate goals.
Payments for Ecosystem Services (PES), which involve paying landowners to conserve their forested land, have emerged as a key tool in conservation efforts. A challenge with PES projects, as you can probably guess by now, is that they might end up paying landholders for ‘conserving’ land that was never under threat. Particularly given that, in typical programmes, people can choose which parcels of land they enrol.
In their research, Santiago Izquierdo-Tort, Seema Jayachandran and Santiago Saavedra demonstrate the smarter contract design can significantly improve effectiveness and make programmes additional, rather than ‘inframarginal’. These adjusted contracts required full enrolment, rather than allowing participants to enrol a subset of their land. Through their experimental set-up, they find that full enrolment led to a 41% decrease in total deforestation compared to the standard contract design – full enrolment contracts led to 4.8 times as many hectares of avoided deforestation per dollar spent. This supported earlier results from a successful PES forest conservation programme in Uganda (Jayachandran 2017).
Read the full article here: Closing loopholes can dramatically improve financial incentives for conservation
Policymakers shouldn’t just consider additionality when designing programmes. Research by Karl M. Aspelund and Anna Russo highlights the importance of getting environmental market design right. They investigate the US’s Conservation Reserve Program, which aims to incentivise landowners to convert cropland to natural habitat. An auction mechanism is used to select participants, but linking bids to satellite land use data reveals that many auction winners are not additional.
As a solution, Aspelund and Russo propose re-weighting the scoring rule, incorporating data that can predict additionality (e.g. soil characteristics), and reducing the total quantity of land procured. They show that these simple changes to auction design, which account for how additional participants are expected to be, can improve selection.
Read their full article here: Designing environmental markets to incentivise conservation: Lessons from the US
Why is it important we get this right?
As discussed in the first episode of our Development Dialogues series with the Yale Economic Growth Center, carbon markets could channel significant funds to low- and middle-income countries, but this requires fixing the current credibility issues these markets face. Currently, as many offset programmes are not additional, they simply enable corporations to claim net zero on the cheap. By getting market and programme design right in developing countries, we can actually offset carbon whilst also channelling much-needed funding to communities and governments that could do with a boost.
You can listen to the full episode on Spotify and Apple Podcasts.
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