Project Additionality to Bolster Integrity of Carbon Credits: Common Practice Analysis in Mongolia Projects

Posted: June 16, 2023

The concept of additionality is a critical component in bolstering confidence in carbon offsets and their integrity. MicroEnergy Credits follows a robust process to ensure that all its carbon projects are strictly additional and have high social impact.

According to the Guide to Using Carbon Offsets, when people talk about the "quality or integrity" of an offset, they are referring to their level of confidence that the use the credit will meet their emission reduction needs. The concept of additionality is a critical component in bolstering confidence in carbon offsets and their integrity. “Additionality”, in the context of crediting mechanisms, refers to emission reductions or removals from a mitigation activity are considered additional if the mitigation activity would not have occurred without the additional incentive provided by the carbon credits. In essence, an additional project means that the project would only be feasible if it received carbon funding from the market-based mechanism. To qualify as a genuine carbon offset, a project's reductions must be "additional" to what would have happened if the project did not exist. Most projects registered against globally accepted greenhouse gas (GHG) project standards adhere to the guidelines for assessment and demonstration of additionality enacted by the respective GHG crediting programs. MEC uses CDM’s ‘Methodological Tool 01: Tool for the demonstration and assessment of additionality’, which is widely used for development of carbon projects.

Common Practice Analysis
The outcome of common practice analysis as per UNFCCC ‘Methodological Tool 01: Tool for the demonstration and assessment of additionality’ and ‘EB 69 Report Annex 8: Guidelines to Common Practice’ proves that MEC’s carbon program is not a common practice in the applicable geographical area.

The calculated applicable capacity or output range is +/-50% of the total design capacity or output of the proposed project activity as per the guidelines to common practices.

Applicable geographic area: MEC’s carbon program in Mongolia (GS2434 and GS11616) is targeted at the low income ger districts of Ulaanbaatar. Back in 2007-10, Ulaanbaatar was the most polluted city in the world during the winter with carbon emissions exceeded 1.2 million tCO2e per year per 100,000 households/Gers(1). Some households were spending 90% of their income buying coal to keep warm in -40°C temperatures. The smoke from burning coal had created the highest global levels of lung disease, heart disease and birth defects.

Measure of emission reduction activities: The proposed project activity reduces emission reduction by catalysing a switch in technology to a more energy efficient technology without changes in energy source. Our team worked with XacBank to identify two products which could address the needs of these communities. One was an efficient furnace that would burn cleanly, eliminating smoke in the home and reducing coal use by 50%. The second was an efficient home insulation, called a ger blanket, which could reduce fuel consumption by an added 50%.

Different technologies: Neither of the technologies were commercially available in Ulaanbaatar at the time of investment decision. Rather, some prototypes had been developed by universities and development research institutions including GIZ (then GTZ).  There were many challenges to overcome to introduce these products. This included developing local supply chains to produce the products which did not exist in the local economy, development of distribution networks, development of financing products, marketing and education in local communities, development of capacity within XacBank beyond traditional banking activities to work in green banking among many others.

Similar projects: At the onset of the space-heating stoves program by MEC, there were no such carbon projects in the applicable geographical area. Even today MEC’s Carbon Program in Mongolia continues to be the only program of activities under household energy efficiency project type under GS/ CDM. Thus, this project as proposed does not fall under “common practice” and is hence additional.

Use of Carbon Funding to overcome barriers to clean energy adoption
MEC uses carbon finance to overcome all of these obstacles, enabling microentrepreneurs to invest in clean energy products. First, MEC works with the microfinance institution to develop an attractive clean energy product offering to its microfinance client base, addressing each of the barriers such as education, price, finance, and supply and aftersales service. Second, MEC trains the microfinance institution to implement the clean energy-lending program. This includes business planning, capacity building, and implementation of marketing, education and supply chain processes. Third, MEC implements a robust and transparent carbon credit monitoring and tracking system to quantify and record the volume of carbon emission reductions created through the clean energy program. Finally, the carbon finance is used to expand and sustain the clean energy program through:

  1. Client education and marketing
  2. Internal training and capacity building
  3. On-lending funds to local SMEs producing the clean energy systems.
  4. Aftersales service and maintenance
  5. Lowering the interest or principal cost to the client.

MEC follows a robust process of ensuring that the project beneficiaries are only low income ger dwellers and households that otherwise cannot have access to the clean energy technologies due economic and financial barriers. The carbon funding is therefore used to overcome these barriers and therefore filling the viability gap in investment decisions. Thus, the carbon credits generated by MEC’s carbon programs have high socio-economic and SDG impacts.

[1] Calculated based on the MCC project reported 13.5 kg of coal consumption daily by traditional stoves in Ulaanbaatar in 2010. Annual coal consumption = 4.93 tonnes (13.5 kg x 365 days). Bituminous coal emission factor as per GHG Protocol is 2.44 tCO2e per tonne of coal. Therefore, annual CO2 emission per household is 12 tCO2e. For 100,000 households/ Gers, annual emission is 1.2 million tCO2e.

MicroEnergy Credits is the most trusted name in social impact carbon credits.

Our mission is to empower every microfinance community with access to affordable, modern, clean energy services, while moving towards a world free of both poverty and climate change.