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The Carbon Market: A Primer for Airports (2011)

Chapter: Chapter 5 - Renewable Energy and Associated Markets

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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
×
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Suggested Citation:"Chapter 5 - Renewable Energy and Associated Markets." National Academies of Sciences, Engineering, and Medicine. 2011. The Carbon Market: A Primer for Airports. Washington, DC: The National Academies Press. doi: 10.17226/14607.
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Page 50

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Table 8 presents some of the instruments presented in this chapter. 5.1 Renewable Energy Certificates 39 C H A P T E R 5 Renewable Energy and Associated Markets Key Takeaways for Airports • The tradable certificate associated with renewable energy is a Renewable Energy Certificate (REC). • RECs present more opportunities to airports than offset credits at this time. • To date, solar is the most commonly used renewable technology at airports. • To avoid the administrative challenges of REC certification and of transacting a REC sale, airport sponsors may prefer to avoid retaining REC-rights as part of a power-purchase agreement. Promoting renewable electricity generation is often cited as a critical part of reducing the con- centration of GHGs in the atmosphere, as renewable electricity generation is considered a car- bon emission free source of electricity. Renewable electricity refers to generation from a renew- able resource. The definition of renewable can vary, particularly when being defined by policy makers. However, at a minimum, the definition usually includes solar, wind, biomass, landfill gas, hydroelectric, and geothermal sources. Most of the world’s electricity still comes from com- busting fossil fuels. According to the U.S. Energy Information Administration, over two-thirds of the world’s electricity supply in 2007 was sourced from fossil fuels as shown in Figure 6. Some airport sponsors have installed renewable energy sources to generate electricity to power airport operations and limit the amount of power they purchase from their local utility or other power provider. To date, solar has been the most common renewable technology installed at airports. A number of financial support mechanisms have been designed to promote renewable electric- ity. Government subsidies, tax breaks, and loan guarantees are often implemented by governmen- tal bodies to promote renewable energy development within their borders. The “green value” of re- newable electricity is also bought and sold in a marketplace. The popular market-based system uses tradable certificates in order to facilitate transactions between renewable electricity generators and interested consumers who cannot economically generate the renewables themselves. Often referred to as RECs, these tradable commodities represent proof that one unit of electricity (usually a mega- watt hour “MWh” or kilowatt hour “kWh”) was generated from a recognized renewable source.

The need for RECs stems directly from the nature of electricity grids. Specifically, it is virtu- ally impossible to ensure that an electron generated from one source, transmitted through the electricity grid, can be delivered to a specific end-user. The challenge in tracking electricity is analogous to pouring a bucket of water in a swimming pool and then draw a bucket of water out the other end—there is no easy way to know whether the water in the second bucket contained water molecules from the first. RECs create a means to track renewable energy ownership on a contractual basis, allowing the owner of the REC to claim the renewable attributes of that power. Sometimes end users will con- tract for power and RECs in what is known as a bundled transaction. Other times, the end-user may not need to purchase additional power, but would like the power that it is currently con- suming to be considered renewable. In these instances, the end-user may simply purchase the RECs. Figure 7 is a schematic of renewable generation and REC creation. 40 The Carbon Market: A Primer for Airports Instrument Description Renewable Energy Credits (RECs) Tradable instruments that represent proof that one unit of electricity was generated from a renewable energy resource. Units are usually in MWhs or kWhs. Energy Efficiency Credits (EECs) / White Tags An instrument that represents proof that one unit of electricity was saved. Demand Side Management (DSM) Programs where large energy users agree to curtail their energy consumption during times of peak energy demand, usually in exchange for some form of compensation or lower rates from their electric utilities. Airport Emission Reduction Credits (AERCs) Credits issued to airports for reducing criteria air pollutants. Table 8. Instruments referred to in Chapter 5. Liquids 5% Nuclear 14% Renewables 18% Natural gas 21% Coal 42% Note: This edition of the International Energy Outlook presents historical data through 2007. Source: USEIA. International Energy Outlook 2010. Washington, D.C., U.S. Energy Information Administration, 2010. Figure 6. World electricity supply by source.

5.2 REC Markets Both mandatory and voluntary markets for RECs exist. Potential purchasers include entities that wish to act as good environmental stewards or to improve their branding by claiming that the electricity they consume is sourced from a renewable energy resource. Other purchasers might be suppliers of electricity, who are required by law to source a certain percentage of their total electricity load from renewable energy resources. For these REC purchasers, obtaining RECs through third party renewable generators may be a lower cost option compared to building and generating their own renewable electricity. Renewable energy developers benefit from this type of program, as RECs represent an additional revenue stream that may be critical in securing financing necessary to build a new project. RECs, like carbon offset credits, can represent a GHG reduction. For instance, one MWh of electricity generated from a renewable source likely has lower emissions associated with it than that of coal-fired generation. Renewable generation can take the place of higher emitting electric sources and help to reduce overall GHG emissions. However, United States–based offset proto- cols at this time do not recognize renewable energy projects as carbon reduction projects for the purposes of issuing carbon offset credits. Therefore, in the United States, renewable energy proj- ects are not usually considered carbon offset projects and there is virtually no market for carbon offset credits from renewable energy. Almost universally, RECs are the tradable certificates used in the United States to represent the environmental attributes of renewable electricity. As with offset credits, opportunities to transact RECs exist in both voluntary and compliance markets. Tradable REC programs are often established as part of Renewable Portfolio Standards (RPSs) or Renewable Electricity Standards (RES). No comprehensive national RPS/RES exists in the United States at this time, although activity in Congress suggests that some support exists for such an initiative. Even without a federal standard in place, 30 states and the District of Colum- bia have enacted mandatory state-level RPS requirements as shown in Figure 8; numerous state goals and city and regional level RPS programs also exist. Renewable Energy and Associated Markets 41 1. Renewable/ green power generated. 2. The electricity is fed to the power grid and treated as non-renewable. 3. The renewable attributes of the green power is sold separately in the form of a REC. 4. The electricity consumer purchases non- renewable electricity from its electricity supplier. 5. The consumer purchases RECs in order to claim that the power they are consuming is renewable/green. Figure 7. Consuming renewable electricity.

Each of the state-level RPSs dictates different targets, eligible renewable technologies, compli- ance dates, geographic restrictions of supply, and bundling requirements among other provi- sions. The variation in state requirements results in a patchwork of compliance requirements and cost levels for compliance. Along with the mandatory REC market created by state-level RPS programs, there is a volun- tary market for RECs in the United States. The voluntary market is characterized by similar ele- ments as the voluntary offset market and is largely driven by entities wishing to act as good environmental stewards by making renewable claims to their energy. Many retail chains tout that their stores consume renewable electricity, for example some major retailers proclaim that their stores are “100% wind-powered.” In these instances, it is unlikely that all of the electrons being consumed by the store were actually generated from a wind farm. The electricity grid is a com- bination of electrons from all electricity sources feeding it, determining or directing certain elec- trons to go to one consumer and not another is a physical impossibility. By purchasing RECs, the store is buying the renewable attributes of generation and the right to claim that they are con- suming power from wind or another renewable source. REC tracking systems have been established as a means for issuing, tracking, and trading RECs. At this time, tracking systems are largely regional. Many state RPSs utilize these tracking systems and often require transactions to take place through these systems. The tracking systems can overlap in some states, but states with RPSs generally use one of the eight REC tracking systems shown in Table 9. Tracking systems vary in the fees that they charge renewable generators. Depend- ing on the tracking system, an airport might be required to pay fees for initial registration, annual subscription, and REC issuance. Often the fees within a tracking system will vary based on the size of the renewable system being registered. 42 The Carbon Market: A Primer for Airports Source: DOE. U.S. Department of Energy - Energy Efficiency & Renewable Energy. http://apps1.eere.energy.gov/states/maps/renewable_portfolio_states.cfm (accessed May 15, 2011). Figure 8. Summary of state-level RPS programs in the United States.

By nature, REC markets are typically confined to those in the energy business. For this reason, airport sponsors have played a minimal role in selling RECs, which are outside of the core busi- ness of airport management. In most historical examples of on-site airport renewables, the air- port sponsor relies on a “power-purchase agreement” (PPA)—a legal arrangement in which a specialized company owns and operates the renewable power system and the system is dedicated to generating electricity for the airport sponsor to purchase. Typically, the specialized company (often called a “solar services provider” receives the rights to the RECs as part of the PPA. Thus their only demand for RECs would be in the voluntary market. Airports are starting to install renewable energy facilities on site. Some are supplying REC markets and others are retaining the RECs to claim the environmental benefits from renewable generation for the airport itself. Airports must consider a number of factors when deciding whether or not to install a renew- able energy project on-site. Table 10 presents potential renewable technologies for airports, a general description of the technology, and some important factors that airports should consider. Renewable Energy and Associated Markets 43 REC Tracking System Commonly Used Acronym U.S. States covered Fees for Renewable Generators Electric Reliability Council of Texas ERCOT TX Annual: NA Registration: NA Issuance: NA Midwest Renewable Energy Tracking System MRETS MT, ND, SD, MN, WI, IA, IL, OH Annual: $500/yr Registration: NA Issuance: $0.005 North American Renewables Registry NAR MO (NAR allows generators anywhere in North America to register projects. Designed in part to serve states not covered by other tracking systems) Annual: $50–$2,000/yr Registration: $50–$1,000 Issuance: $0.05/REC Michigan Renewable Energy Certification System Annual: $100–$1,500/yr Registration: $50–$750 Issuance: NA IM SCERIM New England Power Pool Generation Information System NEPOOL-GIS ME, VT, NH, MA, CT, RI Annual: NA Registration: NA Issuance: NA North Carolina Renewable Tracking System NC-RETS NC Annual: NA Registration: NA Issuance: NA Pennsylvania, Jersey, Maryland Power Pool Generation Attribute Tracking System PJM-GATS PA, NJ, DE, MD, VA, WV, OH, IN, IL Annual: $1,000/yr Registration: NA Issuance: NA Western Renewable Energy Generation Information System WREGIS Annual: $200–$1,500/yr Registration: NA Issuance: $0.005/REC CA, OR, WA, ID, NV, AZ, UT, MT, WY, CO, NM, SD Table 9. REC tracking systems.

44 The Carbon Market: A Primer for Airports Technology General Considerations Airport Considerations Solar • Derived from the sun through the form of solar radiation. • Different technologies convert solar power differently - Photovoltaics (PV) generate electric power by converting solar radiation into direct current electricity using semiconductors. - Other solar technologies capture the thermal energy (heat) from the sun to generate electricity or provide heat. • Geographic location and other climate factors impact the amount of power a given solar project can generate. • In some jurisdictions, the value of a solar REC is substantially higher than that of other renewable technologies. • PV represents the most likely solar technology for airport roofs and/or lands. • On a $/unit of energy basis it is often more expensive than other forms of renewable energy; however, it is also one of the most applicable current technologies for airports. • Represents currently the most popular form of renewable projects for airports. • “Technical Guidance for Evaluating Selected Solar Technologies on Airports” was published by the FAA in November 2010. This document provides detailed siting, operational, and financial considerations for airport operators evaluating PV at their airport. • Installation of PV at airports may improve air quality and is eligible for FAA VALE funding in air quality non- attainment areas if the applicable air agency allows the issuance of AERCs. This funding can result in a significantly reduced payback (in some cases as little as five years). Wind • Converts wind energy into electricity using wind turbines. • Geographic location and physical features of site impact the amount of power a given project can generate. • Traditional horizontal axis wind turbines represent a challenge for airports as impediments to air space. • Vertical axis wind turbines on terminals and other structures may present a more viable wind option, but are often less efficient. Geothermal • Utilizes the geothermal energy contained in the earth’s core to generate electricity. • Geothermal reservoirs are often deep underground, not accessible everywhere. • Ground sourced heating and cooling does not require geothermal reservoirs. • Distributed geothermal or geothermal heat pumps used for building heating and cooling and for hot water heating. Hydropower • One of the oldest and most widely used forms of renewable power. • Uses the gravitational force behind falling or flowing water to generate electricity. • New technologies are gaining some prominence, including pumped-storage and tidal power. • Requires access to a flowing source of water to produce electricity. Biomass • Generally involves combusting biomass material from living or recently living organisms such as wood, waste, and alcohol fuels. • Definitions of what constitutes biomass can vary widely • Sufficient biomass feedstock can be a challenge depending on where airports are located. Biomass sources generally need to be located in close proximity to the end user. Table 10. Renewable technologies and airport applications.

Case Study 3 examines the solar project hosted at the Meadows Field Airport in Bakersfield, CA. The County of Kern, which owns and operates the airport, is eligible to retain the RECs associated with the project as part of the contract with the solar system provider. The case study examines the potential revenue opportunities for the County, should they elect to sell the RECs associated with the project. Renewable Energy and Associated Markets 45 Case Study 3: Meadows Field Airport, Bakersfield, CA The County of Kern, California, owns and operates Meadows Field Airport, a non- hub airport situated in the County’s largest city, Bakersfield. In 2008, the County entered into a Power Purchase Agreement (PPA) with a solar services provider, Regen- esis Solar Power. The PPA enabled Regenesis to install a 744 kW, on-airport solar PV system designed to provide about 75% of the power required by Meadows Field Air- port’s main facility, the William M. Thomas Terminal. In general, the County’s PPA is similar to most airport PPAs nationwide. The primary provisions of the PPA are that (1) the County agrees to purchase power from the PV system for 20 years begin- ning at $0.125/kWh, with a 2.9% annual multiplier (i.e., increasing to $0.221/kWh in year 20) and (2) Regenesis agrees to operate and maintain the PV system. In other respects, the County’s PPA is unique when compared to historical practices at other airports. Specifically, the County retains the rights to half of the “green” power attributes and, therefore, also to half of any RECs generated by the facility. By retaining the rights to green power attributes, the County has the option to: (1) pursue REC certification and sell the RECs in a suitable market or (2) avoid the cost of REC certification and retain the “green claims” associated with the solar generation. If the County so wishes, they can publicize the achievement of green- house gas reductions and sustainable energy sourcing as a result of airport invest- ments. This would not require a certification or retirement process for the RECs. According to Regenesis, the solar PV system reduces greenhouse gas emissions by 2,000 tonnes per year versus what the airport would otherwise consume from grid power—equivalent to removing about 175 automobiles from the road. The State of California has a Renewable Portfolio Standard (RPS), and historically the RPS regulations (California Energy Commission, January 2008) have not permit- ted “distributed generation” systems like the Meadows Field solar PV system (and virtually all airport PV systems installed nationwide) to qualify for RPS require- ments. As a result, RECs generated by a typical California airport’s solar PV system would only have been suitable for sale on the voluntary national REC markets. Vol- untary markets currently yield an estimated $1.00 per megawatt-hour for RECs, which translates to around $1,600 per year in the Meadows Field example. It is pos- sible that a buyer on the voluntary market of solar RECs (as opposed to a generic renewable mix) would pay a premium for the Meadows Field solar RECs. Recently, California amended their RPS rules, allowing for more flexibility in the way RECs (referred to as TRECs for tradable renewable energy credits) can be applied for compliance. One potential change being considered by the California Energy Com- mission (CEC) is allowing distributed generation solar systems, like the Bakersfield system, to qualify for RPS compliance. If such a decision is made, the RECs from the Bakersfield project would have substantially more value. In such a scenario, at pricing (continued on next page)

5.2.1 Energy Efficiency Credits “White Tags” Numerous states have Energy Efficiency Portfolio Standards (EEPS) that place a mandate on regulated utilities to achieve certain levels of improved energy efficiency by their end-use cus- tomers. Utilities meet these obligations by incentivizing their customers to implement various energy efficiency or conservation measures (rebates for installing energy efficiency appliances, higher efficiency HVAC equipment, etc.) Often, EEPSs permit trading between utilities through EECs or “white tags,” whereby a utility with white tags in excess of the mandated levels can sell to other utilities that may have a shortfall. White tags are a measure and calculation of actual power saved through the direct result of a conservation or energy efficiency action. They represent actual energy saved, as opposed to RECs which represent energy generated. White tags should also be distinguished from demand side management (DSM) programs, which generally involve utilities providing incentives to large energy users for curtailing their energy consumption during times of peak energy demand. 46 The Carbon Market: A Primer for Airports between $10–$20 per megawatt-hour, the Bakersfield RECs could earn between $16,000–$32,000 per year. It should be noted that at this time there is not much price transparency for California TRECs and these prices are merely hypothetical. The typical solar services provider that operates and maintains an airport solar PV system likely has the expertise—or easy access to it—to efficiently execute a REC transaction in the voluntary markets. Accordingly, airports that are not using RECs to make green claims may, depending on the state in which the airport is located, prefer to structure a PPA such that the solar services provider retains the rights to RECs. By doing so, an airport may (1) avoid the administrative efforts of certification and of transacting a REC sale and (2) receive a lower price for power via the PPA. The PV system at Meadows Field also affords the opportunity for the County to sell excess electricity to the regional utility provider, Pacific Gas and Electric (PG&E). By law in California, and in many other states, the “net-metering” policy incentivizes the installation of small, localized renewable electricity generation systems (DSIRE, 2011). Net-metering policies require that the regional utility provider purchase excess electricity generated by localized renewable systems, wherein excess electric- ity is defined as the difference between what the renewable system produces and the electricity demand of the connected onsite facility—which in the case of Mead- ows Field is the William M. Thomas Terminal. The value of excess electricity sold to PG&E is credited back to the County on an annual basis. The value of the PPA to the County and Regenesis is further strengthened by (1) a federal tax incentive for solar photovoltaics owned by private corporations (in this case Regenesis) and (2) a California incentive program for renewable power pro- duction called the “California Solar Initiative” (CSI), which at its inception provided an incentive of $0.35 per kWh over 5 years and which, as the program reaches its completion, will provide $0.03 per kWh. The reason for the declining incentive is that the solar PV market is expected to eventually sustain itself. The PV system was receiving from CSI a Step 4 incentive of $0.26/kWh as of July, 2011. Case Study 3: (Continued).

While EEPS create a compliance market in many states, there is also a voluntary market where large corporations are beginning to purchase white tags as part of broader initiatives to reduce their carbon footprint. Airports have invested in numerous energy efficiency projects; however to date they have not been major participants in white tag markets. Case Study 4 examines a unique example of an air- port creating and selling offset credits from an energy efficiency project. The Montreal Airport Renewable Energy and Associated Markets 47 Case Study 4: Montreal Pierre-Elliot-Trudeau International Airport, Dorval, Canada The Montréal Pierre-Elliot-Trudeau International Airport in Dorval, Canada, is the third busiest airport in Canada. The airport is located 12 miles west of Montreal. In 2010 the airport served close to 13 million passengers. In 2001, Aéroports de Montréal (ADM), a not-for-profit corporation responsible for the management, operation, and development of Montreal-Trudeau Airport, under- took a significant energy efficiency project to modernize the airport’s central heat- ing plant. The project’s scope included relocating the off-site heating plant inside the terminal as well as installing high efficiency bi-fuel boilers, chillers with heat recovery condensers, and direct contact energy recovery equipment. Relocating the heating plant enabled improved energy efficiency and allowed for an expansion of the HVAC system. In addition to the reduced operational energy costs resulting from the project, the associated GHG emission reduction from this project allowed ADM to realize a revenue stream through the sale of voluntary carbon credits. Carbon credits from this project were calculated through the difference in CO2e emitted from the old heating plant compared to the new, more efficient heating plant. ADM completed its first transaction of carbon credits in 2009, selling 24,200 carbon credits (accrued between 2004 and 2009) on the Canadian voluntary carbon market) for a price of CAN$5/tCO2e. This equated to an annual revenue stream of about CAN$20,000 over 6 years. ADM required a third party to verify the GHG emis- sion reductions on their behalf. Another third party prepared the quantification report and originally bought the carbon credits after registering the credits with the Canadian Standards Association. All 2004–2009 credits were ultimately sold to The Greening Canada Fund who retired the credits. The Greening Canada Fund is a vol- untary carbon emission reduction fund aimed at achieving environmental benefits through the financial support of large Canadian corporations who wish to reduce their “carbon footprint.” According to ADM, the sale of carbon credits was positive overall and elicited goodwill from the community and airport industry. In the future, ADM will perform the quantification, verification, and sale of carbon credits every 3 years as opposed to on an annual basis in order to reduce administration and transaction costs. Between 2008 and 2009, the total carbon emission reduction resulting from the energy efficiency project was 6,500 tonnes. This is the equivalent to removing nearly 565 automobiles from the road every year (ES EPA, 2000). Going forward, as- suming the same carbon emission reduction as 2008–2009, ADM has the potential to raise on average more than CAN$32,500 annually through this source if the (continued on next page)

project is the only known example of an airport in North America monetizing carbon offset cred- its. Many United States–based offset standard bodies do not recognize energy efficiency measures as eligible carbon offset project types. Of course, having a carbon reduction project recognized by a major offset standard body is not a prerequisite for monetization. With that said, buyers in the market may prefer that offset credits be created or approved by certain offset standards bodies over others. 5.3 Voluntary Airport Low Emission Program (VALE) 48 The Carbon Market: A Primer for Airports price for voluntary credits stays at CAN$5/tCO2e. The spread in recent years for car- bon credits from efficiency projects is between CAN$3.9/tCO2e and CAN$6.9/tCO2e (EcoSystem 2009). However, the lack of a mandatory carbon market in Canada pres- ents uncertainty for any airport operator selling credits on the voluntary market as it is more illiquid than a standard exchange market or over-the-counter market where demand is high. The spread in recent years for carbon credits from efficiency projects is between CAN$3.9/tCO2e and CAN$6.9/tCO2e (EcoSystem 2009). There even exists the chance that buyers for voluntary credits will not be available imme- diately when the operator wishes to sell. This case study is included as it is the only known example of an airport in North America monetizing carbon offset credits. While two of the three major United States–based offset standard bodies, the Climate Action Reserve and the American Carbon Registry, do not recognize energy efficiency measures—which this exam- ple illustrates—as eligible carbon offset project types, the Voluntary Carbon Stan- dard accepts such offset project types. With that said, having a carbon reduction project recognized by a major offset standard body is not a prerequisite for mon- etization. However, buyers in the voluntary market may prefer offsets to have been created or approved by certain offset bodies over others. Case Study 4: (Continued). Key Takeaways for Airports • Airport Emission Reduction Credits (AERCs) from the VALE program represent reductions in criteria pollutants, which are non-GHG air pollutants that directly affect human health. • AERCs are similar to offset credits: reducing air pollutant emissions from one activity to account for increased emissions from a different activity. • Unlike offset credits, AERCs cannot be traded; therefore airport sponsors should avoid trading RECs that implicitly include AERCs. The use of credits associated with environmental initiatives and emission reduction projects is not a new concept for airports. Under the Federal Aviation Administration’s (FAA’s) Volun- tary Airport Low Emission (VALE) program, airports are eligible to receive airport emission reduction credits (AERCs) for projects that reduce emissions of criteria air pollutants (which does

not currently include GHGs). The emission savings, represented by the AERCs, can later be applied to a conformity evaluation or determination for future projects or air service additions that increase an airport’s overall emissions. 5.3.1 VALE Program Description In 2003, the Vision 100—Century of Aviation Reauthorization Act (Public Law 108-176), estab- lished the VALE program to encourage airports to voluntarily reduce emissions from aircraft, ve- hicles, ground support equipment (GSE), and infrastructure at commercial service airports in areas designated as nonattainment and/or maintenance by the EPA’s National Ambient Air Qual- ity Standards (NAAQS) (Public Law n.d.). This FAA program is intended to reduce pollutants and precursors, improve local air quality, and accelerate the use of new and cleaner technology. Examples of previously funded projects include clean technology for boilers, vehicles, electric GSE, natural gas refueling stations, gate electrification, and alternative energy systems including geothermal and solar photovoltaics (PV). Program benefits include the following: • Provides funding for clean airport technology, • Removes regulatory barriers with emissions credits, • Encourages use of domestic alternative fuels, • Encourages early pollutant mitigation measures, • Reduces airport and airline fuel and maintenance costs, • Expedites the environmental review process for airport modernization, • Establishes airport commitment to environmental stewardship, • Useful for public relations, and • Initiates dialog between airport and air quality agencies. The FAA funds VALE projects through the AIP. Airports can also use local funds through the use of Passenger Facility Charges (PFCs). AIP funding is 75% for medium-to-large hub airports and 95% for smaller commercial service airports. PFC funding can cover up to 100% of eligible costs. As part of the VALE program, the FAA has funded 40 low-emission projects at 22 airports, which represent a total investment of $83 million in federal grants and $25 million in local air- port matching funds. These projects have resulted in a reduction of 5,500 tons of ozone emis- sions, which represents the equivalent of removing 13,500 cars and trucks off the road every year for the next 10 years (FAA 2010a). 5.3.2 RECs and AERCs Renewable Energy and Associated Markets 49 Key Takeaways for Airports • Provided that an airport sponsor retains all AERCs, the sponsor of a VALE-funded renewable energy project may be able to earn revenue from the renewable attributes of the project by selling RECs. The VALE program is intended to reduce criteria pollutants and as a result also reduces GHGs. However, there is currently no structure in the VALE program to provide credits for GHGs. As GHG regulations progress, VALE could provide the framework for crediting airports with GHG AERCs or other similar instruments.

New, on-site renewable energy sources funded by VALE create an opportunity to generate both RECs and AERCs for airports. Per VALE program rules, the airport operator is not allowed to sell the AERCs associated with that power generation; however, the airport operator can elect whether to retain or, provided that certain conditions are met, sell the RECs. The primary con- dition is that the REC sale does not include the sale of the AERCs. In other words, the REC must not include the criteria pollutant emission reductions, which are the basis of the AERCs for on-airport use. This requirement should be considered as airport operators plan how they will use the RECs and AERCs associated with renewable generation. Furthermore, as a means of ensur- ing proper use of airport revenues, FAA has previously required that sponsors of VALE-funded renewable energy projects commit—should the sponsor choose to sell the RECs associated with the project—that the sponsor would only receive discounts from the local utility provider rather than conduct a sale on the wider REC market (FAA 2010b). Another consideration is that the FAA rules on AERCs may even preclude the sale of RECs in some mandatory markets that define RECs to include “all environmental attributes.” 50 The Carbon Market: A Primer for Airports

Next: Chapter 6 - Trading Offset Credits and RECs »
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TRB’s Airport Cooperative Research Program (ACRP) Report 57: The Carbon Market: A Primer for Airports provides information on carbon and other environmental credit trading markets, and highlights the potential opportunities and challenges to an airport's participation in these markets.

The primer also addresses the new terms and concepts related to the carbon and other environmental markets.

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