1. Baselines and Additionality Executive Board decisions so far Steve Thorne SouthSouthNorth Accra, Ghana 7 th and 8 th November 2005

2. Baselines The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity.

3. Baselines Para 45 M&PA baseline shall be established: (b) In a transparent and conservative manner regarding the choice of approaches, assumptions, methodologies, parameters, data sources, key factors and additionality, and taking into account uncertainty; (c) On a project-specific basis; (d) In the case of small-scale CDM project activities …in accordance with simplified procedures developed for such activities; (e) Taking into account relevant national and/or sectoral policies and circumstances, such as sectoral reform initiatives, local fuel availability, power sector expansion plans, and the economic situation in the project sector.

4. Baselines Para 46 of M&P. The baseline may include a scenario where future anthropogenic emissions by sources are projected to rise above current levels, due to the specific circumstances of the host Party.

5. Baselines M&P Approach to identifying baseline scenario Para. 48a, b or c a. Historical emissions b. Economically most efficient c. Technology used in similar circumstances (top 20% of performance)

6. Additionality In the beginning… Environmental Investment Financial Technical

7. M&P Text Para 43 M&P: “A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity.”

8. Additonality tool Starting time of the project Selection of plausible alternatives to the project Financial analysis Barrier assessment The implications of registration of the project

9. How ODA was dealt with Preamble to Decision 17/CP.7: Modalities and procedures for a clean development mechanism as defined in Article 12 of the Kyoto Protocol “Emphasizing that public funding for clean development mechanism projects from Parties in Annex I is not to result in the diversion of official development assistance and is to be separate from and not counted towards the financial obligations of Parties included in Annex I”

10. Baseline approach Small-scale top down Existing approved methodology New methodology (see approach)

12. Conclusions Baselines and additionality are intimately linked The EB has interpreted the definition of “additionality” (para 43 of M&P) in terms of both environment and financial The general rule is that a project is additional if it is not part of the baseline But tests are still not robust enough Financial appraisals (IRRs and NPV) can be misused as can the barrier tests Who is investing, where investment happens, type of project (technology, retrofit, and greenfield) affects the appetite for investment

13. Conclusions Using financial analysis for additionality tests requires higher (conservative) IRRs and lower NPVs The role of national/sectoral policy/regulation in baseline/additionality analysis (still being considered) International non-tariff implications can mask investment requirements in host countries Definitions of if/where ODA (public funding) can be used in the CDM still needs further definition Small-scale interpretations of baseline methodologies is slow In general the EB interpretation of additionality has enhanced the integrity of the CDM

14. Baseline and additionality in the M&P Para 48 of M&P: “In choosing a baseline methodology for a project activity, project participants shall select from among the following approaches the one deemed most appropriate for the project activity, taking into account any guidance by the executive board, and justify the appropriateness of their choice: (a) Existing actual or historical emissions, as applicable; or (b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment; or (c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category.”