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 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.
Across the globe in voluntary and mandatory carbon standards there are various methods and tests for assessing additionality. The Woodland Carbon Code uses three internationally recognised tests for additionality (Tests 1, 3 and 4) plus a test focussing on the current funding arrangements for woodland creation in the UK (Test 2).
Levels of woodland creation across the UK are generally low at present. It is expected that extra income from selling carbon units will encourage woodland creation projects that would otherwise not have taken place.
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.
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 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 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.
Compensatory planting to replace areas of woodland that are felled (e.g. for development or restoration of open habitats) is not additional.
Woodland creation as a result of a planning condition under a Town and Country Planning Act or as an ‘allowable solution’ under Zero Carbon Buildings in London, may be eligible provided:
- There is a range of possible environmental solutions and woodland creation is not specifically required
- The income from the developer/ planning condition doesn’t rule the project out under investment test 3.
- 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
In order to show the significance of income from carbon units, projects shall demonstrate that income from the sale of carbon units, over the project lifetime, equates to at least 15% of the project’s planting and establishment costs up to and including year 10.
It is acceptable for the combined income streams for the project (eg grant, carbon and other income) to cover more than 100% of the planting and establishment costs to year 10, provided test 3 or test 4 is also passed. We recognise that there are wider project costs, and that management costs will continue for the project duration. The planting and establishment costs is used in this comparison as this is fairly consistent for projects of a given type, whereas other projects costs may vary greatly depending upon the wider infrastructure being put in place.
Costs and revenues shall be based on current prices. Project Developers can use the WCC Additionality Spreadsheet to set out costs/income to meet Test 2.
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
The purpose of the investment test is to demonstrate that, without carbon finance, that woodland creation is either (a) not the most economically or financially attractive option for that area of land (eg woodland creation is profitable, but less so than grazing or other likely non-woodland use) or (b) is not economically or financially viable on that land at all (eg woodland creation is not profitable).
The test involves evaluating all costs and revenues for the project duration (in contrast to Test 2 which only considers planting and establishment costs to year 10). 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.
- Project Developers can use the WCC Additionality Spreadsheet to set out costs/income to meet Test 3.
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
- Reduction in 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)
- Timber, woodfuel or other non-timber product sales
- Carbon unit sales
- Increase in land value (by accounting for its sale or residual value at the end of the project duration
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.
Similar funding models/arrangements’ could be:
- 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: Investment).