EcoRobO’s Recent Comments

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  Not as stupid with realistic examples

  Let me first say that I'm new to this site, but that I do spend a lot of time thinking about additionality.

  The choices you have laid out for how to spend your million bucks don't serve as much of a demonstration.  Of course you should make the first investment and choose to save $500k per year.  The question is...should you be able to sell 1,000t of offsets?  If you've made that first investment, you don't need the offset sales revenue.    

  Assume that there is a financial additionality test that means this first investment is not eligible for offsets.  The second choice is something that would be financially additional, and you should generally expect that it will allow you to sell offsets.  If the price of carbon rises over $10,000/ton and you are able to sell offsets from the second investment and not the first, you should begin to consider the second investment (actually, you should make your first investment, then consider borrowing another $1 million and make the second, too, but you have said you are capital constrained, so I guess making both investments is out of the question).

  The point is, financial additionality won't drive you away from the first investment.  You have all the incentive you need for it with the fat cash return it promises.  The point is that a financial additionality test will lead you to consider the second investment when the price of carbon gets high enough.  And that's just as it should be - with financial additionality in place, rising carbon prices mean more investments make sense when carbon is factored in.

  The $10,000 price of carbon in this example is ridiculously high, of course, but that's just because you have given yourself such ridiculously different choices.  A better question would be: what should you choose between a project that gives you $500k and 1,000 tons or $400k and 10,000 tons.  Well, if you favor the second over the first, you're clearly relying on some value for the emission reductions, so you have selected a financially additional investment that could in theory allow you to sell offsets.  If you can sell offsets at e.g. $15/ton, the second choice shoots up to $550k per year and is better than the first.  At $25/ton, the second is at $650k per year and starts to look much better.  And that's as it should be - the second investment reduces significantly more emissions.  This example also proves that you don't have to lose money for an investment to be deemed additional.
  On Does additionality matter? posted 1 year, 8 months ago 29 Responses