1.6 Additionality

Requirement

Additionality shall be demonstrated through the following tests.

  1. Legal test. There is no legal requirement specifying that forests should be created. Compensatory planting is not eligible.
  2. Contribution of Carbon Finance test. Carbon finance payments shall equate to at least 15% of the project’s planting and establishment costs.
  3. Barrier test. Existing barriers to the implementation of the project have been overcome. Barriers could be social, economic, or environmental.

Means of Validation

  • Statements in Project Design Document
  • Statements or other evidence that at least 15% of establishment costs over the first 10 years are covered by carbon financing
  • Financial analysis
    • A full financial analysis (including expected costs and revenues) of the funds required to implement and manage for the project duration
    • A sub-analysis of the actual planting and establishment costs to Year 10 and the proportion covered by carbon finance
  • Further evidence to support barrier test if used

Means of Verification

  • Not required

Guidance

Projects receiving grant aid under a government-funded initiative are eligible provided additionality tests are met. A template FCC Additionality Spreadsheet is available. Project developers can use it to demonstrate how Test 2 is met by setting out expected costs and revenues. For a group, Tests 2-3 can be carried out at project-group level provided similar funding models/arrangements (Test 2) or similar barriers (Test 4) apply to all constituent projects. Where one or more constituent projects are significantly different in these aspects, additionality should be assessed for each constituent project.

FURTHER READING

Additionality

  1. Requirement
  2. What is additionality?
  3. Background to additionality in the UK
  4. Bundling or Stacking ecosystem service credits
  5. How to assess additionality

1 Requirement

  • Projects shall pass the Legal and Investment Test to demonstrate additionality.
  • The relative proportions of each source of income shall be declared in the Project Design Document.
  • Project Developers shall use Project Idea Note to demonstrate how the Investment Test is met.
  • This requirement is only checked at validation.

2 What is additionality?

The term additionality is used to mean the carbon sequestration over and above that which would have happened anyway in the absence of a given project or activity.

Buyers of carbon units want to know that their input has enabled more carbon sequestration than would otherwise have happened under existing legal, financial and business circumstances. Under the financial consideration, a project is only 'additional' if it requires carbon income to turn it from a project which is not financially viable/worthwhile (in its own right or compared to an alternative non-forest use) to one which is financially viable.

If the landowner wishes to create forest and use the carbon units against their business’ own emissions in the future, the carbon price represents the price they would otherwise have to pay to buy carbon units on the open market. See examples of those who are 'growing their own'.

3 Background to additionality in Iceland

Levels of forest creation across Iceland are generally low at present, and forest creation targets of 2.000 hectares per year, to help meet the target to be Net Zero emissions by 2040, are challenging. Income from carbon sales will encourage some new landowners to plant, and other landowners might wish to create their own 'store' of carbon credits to use against their wider business' emissions.

Skógarkolefni - Forest Carbon Code applies a project-based approach to assessing additionality. This guidance has been adapted from the CDM Tool for the Demonstration and Assessment of Additionality in A/R CDM Project Activities (Version 02) in order to take account of policy instruments operating in Iceland.

4 Bundling or stacking of ecosystem service credits/units in forest projects

Current Situation: Bundled Credits/Units

With Skógarkolefni – Forest Carbon Code, wider benefits of forest creation projects are 'bundled' with the carbon unit when they are sold (i.e., the landowner sells the carbon unit with the other benefits of the project 'attached' or included).

Future Possibilities: Stacked Credits/Units

In future, it may be possible to 'stack' voluntary credits/units generated from a forest creation project (e.g., where credits/units are generated for other ecosystem services such as biodiversity or water), provided:

  • There is a credible voluntary standard/methodology for other ecosystem service
  • These standards/methodologies are approved for use by Skógarkolefni - Forest Carbon Code Secretariat
  • All income streams are declared in the FCC Cashflow Spreadsheet
  • Claims made are clear and explicit.

5 How to assess additionality

Additionality is tested in two ways within the Forest Carbon Code:

  • Legal Test
  • Investment Test

Both tests shall be passed to demonstrate additionality.

Legal Test

Forest creation that is required by law is not additional, whether under legislation set by Althingi, devolved administrations or local government. A forest creation project passes the legal test when there are no laws, statutes, regulations, court orders, environmental management agreements, planning decisions **(see below) or other legally binding agreements that require its implementation, or the implementation of measures that would achieve equivalent levels of sequestration or other greenhouse gas emissions reductions.

Compensatory planting to replace areas of forest that are felled (e.g., for development or restoration of open habitats) or areas felled due to health problems are not additional.

Investment Test

The purpose of the investment test is to demonstrate that over the project duration, without carbon finance, forest creation is either ...

  1. not the most economically or financially attractive option for that area of land (e.g., forest creation is profitable, but less so than grazing or other likely non-forest use) - For example the Net Present Value of forest creation (without carbon income) could be positive, but it is less than the Net Present Value of the current/ baseline land use, or
  2. not economically or financially viable on that land at all (e.g., forest creation is not profitable) - For example, the Net Present Value of forest creation (without carbon income) is negative, but adding carbon income moves the Net Present Value to nearer zero or positive.

Project Developers should use the FCC Project Idea Note PIN to set out costs/income over the project duration. See template documents. The spreadsheet uses standard costs incurred in forest creation and standard carbon/timber income. The net cashflow is calculated over the project duration and is based on current prices. Project developers enter their actual grant and other income data.

In general, native broadleaved schemes, where there is little or no income from the forest once established, are much more likely to pass the investment test than productive conifer schemes, where there is future income from timber. However, many schemes contain a combination of productive and non-productive elements, and each scheme is judged on its own merits.

At the time of validation, all expected income streams/credit sales should be included in Skógarkolefni – Forest Carbon Code additionality assessment. If further income streams/credit sales are identified at a later date, evidence may be requested to show that the project was not aware of this income opportunity or had not entered into a separate agreement at the time of FCC validation. If Forest Carbon Code projects are subsequently found not to meet any of the requirements above, the project and carbon units may be marked 'Not Delivered' on the International Carbon Registry.

Additionality Test

In the downloadable word processing document below you will find a test form to demonstrate project additionality.

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