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Defining investment additionality for CDM projects: Practical approaches

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  • Langrock, Thomas
  • Michaelowa, Axel
  • Greiner, Sandra

Abstract

The environmental integrity of the CDM under the Kyoto Protocol depends on the possibility to avoid giving emission credits to projects that would have happened anyway. Whether and how ?Investment Additionality? of CDM projects has to be determined is currently part of climate negotiations. We discuss the rationale of companies to invest in projects and analyse possible criteria to determine Investment Additionality from a theoretical point of view. A number of case studies is used to show the implications of the different criteria. The use of a single criterion is not possible, especially due to the importance of non-monetary barriers. However, some criteria are better than others. Moreover, the institutional framework for the selection and application of criteria is very important. Concluding, we suggest a combination of a threshold Internal Rate of Return with a risk factor as primary criterion. To take nonmonetary barriers into account, additional criteria could be used such as the existence of similar privately financed projects in the host country. If no explicit criterion is politically feasible, stringent baseline methodologies could at least capture some aspects of Investment Additionality.

Suggested Citation

  • Langrock, Thomas & Michaelowa, Axel & Greiner, Sandra, 2000. "Defining investment additionality for CDM projects: Practical approaches," HWWA Discussion Papers 106, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26282
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    1. Beuermann, Christiane & Langrock, Thomas & Ott, Hermann E., 2000. "Evaluation of (non-sink) AIJ projects in developing countries (Ensadec)," Wuppertal Papers 100, Wuppertal Institute for Climate, Environment and Energy.
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    Cited by:

    1. Bode, Sven & Michaelowa, Axel, 2003. "Avoiding perverse effects of baseline and investment additionality determination in the case of renewable energy projects," Energy Policy, Elsevier, vol. 31(6), pages 505-517, May.
    2. Müller-Pelzer, Felicia, 2004. "The Clean Development Mechanism," HWWA Reports 244, Hamburg Institute of International Economics (HWWA).
    3. Johannes Alexeew & Linda Bergset & Kristin Meyer & Juliane Petersen & Lambert Schneider & Charlotte Unger, 2010. "An analysis of the relationship between the additionality of CDM projects and their contribution to sustainable development," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 10(3), pages 233-248, September.
    4. Michaelowa, Axel & Umamaheswaran, K., 2006. "Additionality and Sustainable Development Issues Regarding CDM Projects in Energy Efficiency Sector," HWWA Discussion Papers 346, Hamburg Institute of International Economics (HWWA).
    5. Greiner, Sandra & Michaelowa, Axel, 2003. "Defining Investment Additionality for CDM projects--practical approaches," Energy Policy, Elsevier, vol. 31(10), pages 1007-1015, August.
    6. Muller-Pelzer, Felicia, 2004. "The Clean Development Mechanism," Report Series 26122, Hamburg Institute of International Economics.
    7. Sathaye, Jayant & Murtishaw, Scott & Price, Lynn & Lefranc, Maurice & Roy, Joyashree & Winkler, Harald & Spalding-Fecher, Randall, 2004. "Multiproject baselines for evaluation of electric power projects," Energy Policy, Elsevier, vol. 32(11), pages 1303-1317, July.
    8. Randall Spalding-Fecher & Steve Thorne & Njeri Wamukonya, 2002. "Reside0ntial solar water heating as a potential Clean Development Mechanism project: A South African case study," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 7(2), pages 135-153, June.
    9. Tanwar, Nitin, 2007. "Clean development mechanism and off-grid small-scale hydropower projects: Evaluation of additionality," Energy Policy, Elsevier, vol. 35(1), pages 714-721, January.

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