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Time to rethink CDM additionality – Newcombe

07 May, 2008

The concept of project-by-project 'additionality’ in Clean Development Mechanism (CDM) projects should be abandoned, according to a market veteran. The CDM must also be extended into the agriculture and forestry sectors to remain relevant in the future, according to carbon market experts.

Speaking at the Carbon Expo trade fair in Cologne, Germany, today, Ken Newcombe – the founding head of the World Bank’s carbon finance unit, and now with investment bank Goldman Sachs – said the CDM is “at a crossroads” and it must evolve after the end of the first Kyoto commitment period in 2012.

He questioned whether the CDM was capable of delivering emission reductions on the scale necessary in the future when there are “large gaps” which it fails to address.

He described the concept of additionality – the idea of proving that a project would not have happened without the finance provided through the CDM – as “impossible”.

“By sticking relentlessly to the idea that a project must be additional, we have progressively increased transaction costs, increased the burden of proof and increased liability and risk for the private sector“, he said.

“The result is less enthusiasm for capacity to invest ... This is no basis on which to scale up an order of magnitude.”

He urged a move to a “portfolio approach” to additionality, where sectors would be benchmarked for best practice. Under such a scheme, activities that emit below the benchmark would be rewarded with credits, but with a discount for the “anyway” or non-additional tonnes of emissions reductions that occur.

Newcombe added: “It’s time we took stock to distinguish between sectors and to ensure that the CDM ... remains as important to the future as it is to the present.”

Joelle Chassard, current manager of the carbon finance unit at the World Bank said that, if the CDM is to scale up, “we need to think of approaches that move away from a project-by-project approach, from counting every reduction to one that will measure if there’s a change in trend.”

She and Newcombe also said the CDM has not risen to the challenge of reducing emissions from agricultural and forestry sectors.

Newcombe said: “Sustainable land use is fundamental to [combatting] climate change. We can’t continue to fight climate change with one hand behind our back.”

He added that carbon capture and storage is another technology that a future CDM must incentivise.

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