1.6 Additionality
- What is additionality?
- Background to additionality in the UK
- Bundling or stacking ecosystem service credits
- How to assess additionality
Requirement
The legal and investment tests shall be passed to demonstrate additionality.
Legal test: There is no legal requirement specifying that woodlands should be created. Compensatory planting is not eligible.
Investment test: Projects shall demonstrate that without carbon finance the woodland creation project is either not the most economically or financially attractive use for that area of land or is not economically or financially viable on that land at all.
Project developers shall use the template Woodland Carbon Code Cashflow Spreadsheet to demonstrate how the investment test is met.
The relative proportions of each source of income shall be declared in the Project Design Document.
Older projects which were registered prior to 1 July 2021 and registered after tree planting had started, shall supply evidence to confirm that carbon finance from selling carbon units or 'insetting' (creating your own carbon units) was considered in the planning stages of the project (for example the inclusion in minutes of board meetings or planning documents, cashflow or emails).
Guidance
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-woodland use) to one which is financially viable.
If the landowner wishes to create woodland 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'.
Background to additionality in the UK
Levels of woodland creation across the UK are generally low at present and woodland creation targets of 30,000 hectares per year to help meet the target to be net zero emissions by 2050 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.
The Woodland 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 the UK.
Bundling or stacking of ecosystem service credits/units in woodland projects
Current situation: Implicitly bundled credits/units
With the Woodland Carbon Code, wider benefits of woodland creation projects are implicitly ‘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 woodland creation project (e.g. where credits/units are generated for other ecosystem services such as biodiversity or water). Work is underway in collaboration with the Peatland Code, the UK Land Carbon Registry and each of the devolved UK Governments to consider how stacking could function in a future version of the Code.
Mechanisms are needed to ensure stacking does not compromise the integrity of the market, in particular the requirement for projects to demonstrate additionality. A programme of work is planned to develop mechanisms to enable stacking, including:
- The existence of credible voluntary standards for each ecosystem service in the stack.
- A mechanism to ‘approve’ those standards to ‘stack’ with the Woodland Carbon Code, potentially through the Nature Markets Framework being developed by Defra and the British Standards Institute, with approval from the Woodland Carbon Code Executive Board.
- Methods for distinguishing bundled projects from stacked projects, including mechanisms to show this on the UK Land Carbon Registry. If other ecosystem credits are held on a different registry, then processes to make this transparent between registries. This will avoid double counting and ensure that claims of the different benefits/credits from a project are clear and explicit.
- An updated Woodland Carbon Code Cashflow spreadsheet to include income streams from other types of credit.
How to assess additionality
Additionality is tested in two ways within the Woodland Carbon Code:
- Legal test
- Investment test
Both tests shall be passed to demonstrate additionality.
Legal test
Woodland creation that is required by law is not additional, whether under legislation set by the EU, UK, devolved administrations or local government. A woodland 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 woodland that are felled (e.g. for development or restoration of open habitats) or areas felled due to a Statutory Plant Health Notice are not additional.
**Planning decisions:
Woodland creation as a result of a planning condition under a Town and Country Planning Act or in England the Environment Act 2021 may be eligible provided:
- There is a range of possible environmental solutions and woodland creation is not specifically required.
- It is not compensatory planting to replace areas of woodland felled.
- The income from the developer/ planning condition doesn’t rule the project out under the investment test.
This includes:
- The Town and Country Planning Act (1990), Section 106 Planning Obligation (for England and Wales)
- The Town and Country Planning Act (Scotland) 1997, Section 75 Planning Obligations
- The Planning Act (Northern Ireland) 2011, Section 121 Planning permission to include appropriate provision for trees
- Conservation Covenants for Biodiversity Net Gain under the Environment Act 2021.
In England, woodland creation projects established to provide biodiversity credits under Biodiversity Net Gain or nutrient credits under the Solent Nutrient Market or Somerset Catchment Market are unlikely to be eligible for the Woodland Carbon Code/voluntary carbon credits as their legal agreements are likely to specify that woodland creation is required.
Investment test
The purpose of the investment test is to demonstrate that, over the project duration, without carbon finance, woodland creation is either:
- not the most economically or financially attractive option for that area of land (e.g. woodland creation is profitable, but less so than grazing or other likely non-woodland use) - For example the Net Present Value of woodland creation (without carbon income) could be positive, but it is less than the Net Present Value of the current/ baseline land use, or
- not economically or financially viable on that land at all (e.g. woodland creation is not profitable) - For example, the Net Present Value of woodland 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 Woodland Carbon Code Cashflow Spreadsheet to set out costs/income over the project duration. See template documents. The spreadsheet uses standard costs incurred in woodland 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 woodland 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 the Woodland 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 validation. If Woodland 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 UK Land Carbon Registry.
