Ex-post Evaluation of the Additionality of a Clean Development Mechanism Cogeneration Project in Uganda: the significance of changes in project financing and background economic conditions

In this paper I evaluate the additionality of a Clean Development Mechanism (CDM) bagasse cogeneration project at Kakira Sugar Works (KSW) in Uganda using what I refer to as an ex-post comparative baseline approach that accounts for how background economic conditions and project financing evolved over the project’s 7 year crediting period from 2008-2014. The CDM project claims that CDM financing was necessary for the expansion of bagasse cogeneration capacity, the surplus electricity from which has been exported to displace emissions associated with Uganda’s national grid. Evaluation of the conditions of background additionality led to the identification of important changing incentives for cogeneration: the introduction of Uganda’s renewable energy feed-in-tariff, which by 2011 equalled tariff rates originally requested by KSW for expansion, as well as rising domestic sugar prices. At the same time, emissions associated with Uganda’s national grid came down because large hydroelectric generating capacity came online around 2011-2012 while the actual amount of electricity that KSW was able to generate was found much reduced compared to their ex-ante assessments. In terms of project finance additionality, the firm received considerable financing from the World Bank and other donors before and during the CDM crediting period which was not reported in the CDM project’s baseline. Bringing these evaluations of the two dimensions of additionality together in a quantitative manner, the CDM is found to have accelerated the capacity of KSW to reduce emissions associated with Uganda’s national grid, but not at the rate claimed in the CDM project documents—only about one-third of carbon credits claimed under the CDM were found genuine. The conditions of additionality can change significantly over the course of a CDM project in a way that undermines project environmental integrity because the CDM rules do not accommodate changing baseline conditions. I recommend that a reformed CDM, NAMA or other new market mechanism adopt some of the elements of the approach used here including use of comparative performance benchmarks, an additionality risk management tool and engaging donors in the development of “ODA-baselines” for climate mitigation projects which combine carbon finance and development assistance.