Project Additionality to Bolster Integrity of Carbon Credits and Overcome Socio-Economic Barriers

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.

Socio-Economic Barrier Analysis for proof of Additionality of MEC’s Mongolia Carbon Program – GS2434 (1) & GS11616 (2)(3)

Barriers faced by low-income households to adopting clean energy technologies
MicroEnergy Credits (MEC) caters to over 8 million low-income households in remote, rural areas of India, Africa, and Mongolia. These households often face several challenges to accessing clean energy technologies. Under the PoA-DD submitted for the program GS2434 and GS11616, MEC develops projects with microfinance institutions and clean energy product suppliers to market, distribute, and finance clean energy products (4) to these microentrepreneurs and low income and households. Many microfinance clients suffer from energy poverty, affecting their health, their ability to educate their children, the gender balance of their household and their ability to save and accumulate wealth. Presently available clean and low carbon technologies can both improve their quality of life and reduce carbon emissions. Many microentrepreneurs and households lack access to clean energy technologies due to economic barriers and market inefficiencies including:

  • Lack of access to upfront finance
  • Lack of awareness of clean energy products and their value proposition
  • Lack of supply of products in the local marketplace
  • Lack of aftersales service and maintenance
  • Inability to afford the clean energy product.

Micro Energy Credits addresses these barriers by working with microfinance institutions to market affordable, reliable clean energy products right to doorstep of the microentrepreneurs. Microfinance institutions are well positioned to provide clean energy to their clients because they offer:

  • Awareness: Microfinance Institutions (MFIs) offer education in addition to finance with frequent touch points.
  • Finance: Ability to finance upfront costs.
  • Local knowledge: MFIs are typically local organizations that understand local energy resources and needs.
  • Longevity: Most microfinance clients remain bank clients for many years or decades.

Barriers faced by Microfinance institutions
Historically a very small percentage of microfinance institutions have offered microfinance for low-carbon technologies due to economic barriers. MEC has developed a program that enables Microfinance institutions to overcome these barriers. Obstacles that have prevented Microfinance institutions from starting clean energy product lines include:

  1. High cost of hiring additional staff.
  2. Expense of marketing and awareness building.
  3. Steep learning curve to understand products and technologies.
  4. Lack of partnerships with local suppliers and distributors.
  5. Reputational risk.
  6. Scarcity of on-lending funds.
  7. Difficulty developing financial products for consumptive loans.

Use of Carbon Funding to overcome barriers to clean energy adoption
MEC uses carbon finance to overcome all of the 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 in the city of Ulaanbaatar 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] Under the program GS2434, MEC has registered and issued credits from six projects – GS 2435, GS2684, GS2685, GS2686, GS2687 & GS2688.

[2] CDM PoA 8142 titled “MicroEnergy Credits – Microfinance for Clean Energy Product Lines – Mongolia” to GS PoA ID 11616 titled “MicroEnergy Credits – Microfinance for Clean Energy Product Lines – Mongolia”

[3] The projects GS11617, GS11618 & GS11619 are under the PoA GS11616.

[4] Clean energy products (CEPs) included under GS2434 & GS11616 are efficient space heating stoves and insulating ger-blankets.

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

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