Additionality shall be demonstrated through the tests set out below. Test 1 and Test 2 plus one of Test 3 or Test 4 must be passed to ensure additionality.
This requirement is only checked at validation.
The term additionality is used mean the carbon sequestration over and above that which would have happened anyway in the absence of a given project or activity. The Woodland Carbon Code only validateds/verifies woodland creation projects that remove additional amounts of carbon dioxide from the atmosphere compared to what would have happened under existing legal, financial and business circumstances.
Across the globe in voluntary and mandatory carbon standards there are various methods and tests for assessing additionality. The Woodland Carbon Code uses the four most appropriate tests for the UK situation.
Levels of woodland creation across the UK are generally low at present. It is expected that the value of woodlands for carbon sequestration will encourage woodland creation projects that would otherwise not have taken place.
The Woodland Carbon Code applies a project-based approach to assessing additionality, based on a consistent set of criteria which distinguish the woodland creation project from one which would have gone ahead anyway (a 'business as usual' woodland creation project).
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, specifically government grant payments to support woodland creation and management.
There are four tests of additionality used within the Woodland Carbon Code:
- Legal test
- Contribution of carbon finance test
- Investment test
- Barrier test
Tests 1 (Legal) and 2 (Contribution of carbon finance) must both be passed. If Test 3 (Investment) is not passed, Test 4 (Barrier) may be used if there is good evidence for this.
In summary, Test 1 AND Test 2 plus ONE OF Test 3 or Test 4 must be passed to ensure additionality. See Flow Diagram for clarification.
Woodland creation that is required by law is NOT eligible for validation/verification to the Woodland Carbon Code, 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 or other legally binding agreements that require its implementation, or the implementation of similar measures that would achieve equivalent levels of sequestration or other greenhouse gas emissions reductions.
There is no additionality where compensatory planting is required to replace areas of woodland that are felled (e.g. for development or restoration of open habitats).
Additionality can be demonstrated where an initiative offers woodland as one of a choice of carbon reduction options. For example, where woodland creation is one of a number of options for carbon reduction (but is not compensatory planting for deforestation) under The Town and Country Planning Act (Section 106, 1990 - England and Wales, Section 71, 1997 - Scotland) or as an ‘allowable solution’ under Zero Carbon Buildings in London. Where these instruments specifically require woodland creation as the only option, the project is not eligible.
Projects should confirm in their Project Design Document that woodland creation is not required by law and is not compensatory planting.
The purpose of the ‘Contribution of carbon finance’ test is to confirm that it is the extra carbon finance that is material to whether a woodland creation project goes ahead. Carbon finance payments shall cover at least 15% of the project’s planting and establishment costs up to and including year 10. Costs and revenues shall be based on current prices.
Projects shall demonstrate in their financial analysis that at least 15% of the actual planting and establishment costs are paid for by carbon finance.
This carbon finance may be:
- Site preparation, planting and establishment up to and including year 10.
For this test costs shall exclude:
- Validation and verification.
- Other costs related to provision of other facilities or benefits (e.g. recreation facilities, car-parks)
- Land acquisition (purchase, lease, rent) or loss of land value
- Income foregone (e.g. previous agricultural income)
- Subsequent management, thinning and felling operations
Project Developers can use the WCC Additionality Spreadsheet to set out costs/income to meet Test 2.
The purpose of the investment test is to demonstrate that, without carbon finance, the woodland creation project is either (a) not the most economically or financially attractive option for that area of land or (b) is not economically or financially viable on that land at all.
The test involves evaluating all costs and revenues for the project duration (in contrast to Test 2 which only considers planting and establishment costs). Costs and revenues shall be based on current prices.
Projects shall set out all costs and revenues, where practical for the project duration. Projects shall use appropriate metrics such as Internal Rate of Return or Net Present Value. The analysis shall demonstrate the effect of excluding carbon finance on the project's viability, either to show that doing so would render it less economically and financially attractive than other activities that could take place on that land or render it unviable at all.
This carbon finance may be:
- Income for which there is a carbon contract with a 3rd party
- Money the landowner has invested in the project with a view to personally making statements or reporting the carbon
- Planned future sales of carbon, by the landowner or another party, which are linked to predicted sequestration rates.
Costs can include:
- Woodland planting, establishment and management (including forest operations, site maintenance and monitoring)
- Validation and verification
- Land acquisition (purchase, lease, rent) where applicable
- Loss of land value (by accounting for it’s sale or residual value at the end of the project duration)
- Income foregone (e.g. previous agricultural income)
- Other costs where these are an integral part of the woodland creation project (e.g. visitor access management)
Revenues may come from various sources, including:
- Government grants and subsidies (including Single Farm Payment, woodland creation grants and any farmland premium payments)
- Charitable donations
- Private sources
- Other non-government sources (e.g. lottery funds)
And can include payments relating to:
- Carbon sequestration (i.e. carbon finance)
- Other revenues (e.g. timber, woodfuel, other non-timber products and services) where these are integral to the woodland creation project.
Project Developers can use the WCC Additionality Spreadsheet to set out costs/income to meet Test 3.
If the Test (3) Carbon Investment is not passed, there may be cases where other barriers prevent a woodland creation project from taking place. These barriers could be economic, social or environmental.
The purpose of this test is to demonstrate that barriers exist which prevent a project going ahead and show how such barriers would be overcome (e.g. through technical support, re-design of financing etc).
Projects should clearly set out in the Project Design Document whether this test is being used and describe the barriers and how they have been overcome. Supporting evidence (for example, from a bank if financial) will be required to substantiate the use of this test.
Additionality will normally be assessed at the constituent project level, especially if carbon calculations and/or carbon sales are also carried out at that level. However, additionality can be assessed at project-group level provided similar funding models/arrangements (or similar barriers if this test is used) apply to all constituent projects.
Examples of ‘Similar funding models/arrangements’ are given below. At least one of these situations should hold for the project-group:
- All projects under same land ownership.
- All projects have similar levels of carbon funding.
- All projects have similar types/sources of funding.
- The carbon is sold 'by the group' rather than by the constituent projects.
We are currently developing a Forestry Investment Appraisal Tool which will assist project managers in demonstrating the effect of carbon finance on the project's viability (Test 3: Carbon Investment).
Contribution of carbon finance: Once the Code is established, the minimum proportion of a project's actual costs which must be covered by carbon finance (currently 15%) may be revised upwards if the woodland carbon market becomes more established in future.