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Why the Baseline is so Important for Additionality

This is the general definition of the baseline. The starting point against which one measures future change. This definition can also be applied relatively easily to the carbon market.

In the voluntary carbon market, projects are implemented that remove CO2 from the atmosphere. In order to determine how much CO2 is removed, one must also define a baseline against which one can measure future changes.

That looks like a very high number, assuming that “projects” in that context were dedicated carbon reduction projects. However, the study explains where this number is coming from:

According to the study, the projects least likely to have an impact are hydropower and wind power projects. The reason for this is that these technologies are already widespread and therefore the costs have fallen sharply in recent years. Thus, these projects are usually already profitable anyway. The sale of carbon credits, with few exceptions, would have no influence on the implementation of the project.

What does this have to do with baseline and additionality? Projects that would have been implemented even without carbon credits contributing to the financing do not have additionality. Project developers who want to maximize their profit may still be tempted to sell carbon credits. To somehow justify issuing the certificates, one can fiddle with the baseline. For example, one could simply say that the baseline is set as if the project did not exist.

The first project in the graph does not completely cover its costs by the income generated by the project. There is a gap which would lead to the project not being implemented. The financial baseline can therefore be set below the gap. It is important in this context that government subsidies are also added to the income.

If the sale of carbon credits can fill the gap, additionality would definitely be given. Even if the gap is only a fraction of the costs, the additionality achieved is the full size of the project.

This is because the whole project would not have been implemented. This scenario is shown in the middle.

The third project already covers all its cost by income from the project itself and subsidies. The sale of carbon credits might still seem like a good way to boost profits. However, those carbon credits have no additionality as the project could be implemented without the carbon sales. This is a typical example of carbon certificates that don’t reduce carbon emissions.

An example of this are forest conservation projects. If a forest owner has preservation costs and no or too little income from protecting his forest, it could be financially attractive for him to cut down the forest and use the area for other purposes. However, if the forest is already legally protected from logging, this would be a recognized intervention that would move the baseline and therefore the additionality.

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About Sustaim: At Sustaim we believe that an impactful and trustworthy climate-compensation market is necessary to successfully mitigate the effects of climate change.

We are a German based sustainability company that aims to support organizations that take their net-zero promises seriously. Sustaim offers climate-compensation solutions that generate publicly verifiable impact. Through utilizing both technology and close partnerships, we provide full transparency so that our partners can be sure that their financial efforts actually have an impact on the environment.

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Why the Baseline is so Important for Additionality

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