Defining Investment Additionality for CDM projects—practical approaches

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 a 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. Differences in the type of investment call for the application of different criteria. Although some criteria are better than others, no single criterion can outweigh the others in all respects. We therefore suggest a scheme for additionality testing that aims at matching types of investment and criteria in a sensible way. Criteria are evaluated on the grounds of robustness to manipulation, degree of coverage and appropriateness for testing the investment decision under consideration.