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Trading Offset Credits and RECs 55 Table 15. Sample contract sources for bilateral transactions. Instrument Contract Source(s) Carbon Emissions Trading Master Agreement for the EU Scheme, International Emissions Offset Trading Association Note this template is designed for compliance instruments Credits and would need to be modified for carbon offset credits specific to the transaction at hand. _master_agreement_and_sched.pdf RECs ACORE, Environmental Markets Association and the American Bar Association Master Renewable Energy Certificate Purchase and Sale Agreement Agreement.pdf 6.2.4 Bilateral Transactions Finally, if the owner of the environmental instrument directly approaches potential buyers to facilitate a transaction, no middleman or additional support is needed. This essentially elimi- nates transaction fees. This also, however, places the burden on the seller to find a buyer and an appropriate contract vehicle. Environmental instrument transaction contracts are increasing in standardization and template contracts are available to help lay the groundwork for establishing terms and conditions associated with a bilateral transaction. Examples of bilateral transactions at an airport project may include selling the offset credits from a project to travelers seeking to offset the emissions associated with their flight or selling RECs from a renewable energy project to commercial tenants seeking to claim that their store is powered from renewable energy. Template contracts that can be used as a base vehicle to facili- tate bilateral transactions are publicly available as summarized in Table 15. 6.3 Offtake Demand Drivers Key Takeaways for Airports Airports should consider why a potential buyer is in the market for RECs or off- set credits. Often, buyers who are required to purchase RECs or offset credits will be willing to pay more for the instruments than those purchasing for purely voluntary reasons. Potential buyers of offsets credit, RECs and other environmental instruments sourced from projects at or sponsored by airports may be motivated by a number of different drivers, some to meet compliance demand requirements and others to satisfy voluntary initiatives. When mon- etizing through a wholesaler, retailer, or exchange, the drive of the buyer is somewhat less important. However, it is good to understand general demand drivers for environmental instru- ments of projects to ensure that the project best addresses the needs of the market. If an airport

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56 The Carbon Market: A Primer for Airports Table 16. Summary of demand side entities by project type. Project Type Instrument Compliance Demand Voluntary Demand Carbon Offset Carbon RGGI and California Businesses, institutions, and Project Offset Credit pre-compliance individuals seeking to reduce their market players carbon footprint (i.e., "green" companies, schools, or airline passengers) Renewable Solar REC, Utilities and energy Businesses, institutions, and Solar aka "SREC" providers in states individuals seeking to claim solar with solar tier renewable energy consumption requirements in RPS Renewable REC Utilities and energy Businesses, institutions, and Wind, providers in states individuals seeking to claim Biomass, with an RPS renewable energy consumption Other Energy White Tag Utilities and energy Businesses, institutions, and Efficiency providers in states individuals seeking to claim lower with efficiency energy usage and/or reduction of requirements in RPS emissions and externalities associated with traditional energy production operator is looking to bilaterally source an off taker for environmental instruments of a project, then what drives buyer interest is very important and needs to be considered in the selection process. Because there are no specific requirements for voluntary instrument purchases, the characteristics of instruments sought are completely up to the buyer based on what they want to claim. For example, a buyer may want to source instruments locally, so seeking off takers nearby may be a good option. Table 16 summarizes likely demand side entities, both compliance and voluntary, for differ- ent project types. With the exception of regional compliance programs, the United States carbon market demand is voluntary at this time. Many businesses and institutions are very interested in reducing their carbon footprint and purchasing verified offset credits is one way to do this. Voluntary market demand is largely driven by the story that the buyer wants to convey through their off- set credit purchase. Some buyers may be interested in offset credits from a certain project cate- gory or from specific geographic location. In some instances, a buyer may be willing to pay a premium for a certain type of offset credit. For example, a tenant in an airport may like to claim that the operations of their business are carbon neutral through the purchase of offset credits from a project on airport property or another location. Regardless of the offset project type and buyer, it is important to ensure the credibility of the offset credit by having it verified in confor- mance with the requirements of a reputable standard. A significant demand for voluntary market RECs exists at this time, in addition to compliance market demand. The primary standard for voluntary REC market certification is the Green-e standard. Many utilities source voluntary market RECs to retire on behalf of individual cus- tomers opting into their green energy programs. Like carbon offset credits, many corporations and institutions find value in claiming green energy consumption for some or all of their energy use that further stimulates voluntary REC demand. Likewise, some buyers may want to claim a particular renewable energy technology or location and may be willing to pay a premium to pur- chase specific subsets of RECs to tell this story. Finally, voluntary demand for white tags exists, largely by entities that want to claim a reduc- tion in GHG footprint. Several different standards exist for validating white tags, but it is impor- tant to ensure that these efficiency reductions are verified before selling to the market.

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Trading Offset Credits and RECs 57 Airport Offset Example: Carbon Kiosks at San Francisco International Airport In 2009, San Francisco International Airport was the first airport in the United States to introduce a passenger offset program, called Climate Passport, which allows pas- sengers to calculate and reduce the carbon footprint of their air travel by support- ing carbon offset projects based in California. Three Climate Passport kiosks are available at the airport after the security checkpoint on both sides of the Interna- tional Terminal and in Terminal 3. Travelers can also access the Climate Passport through SFO's website at: Using the kiosks or the website, travelers can calculate the carbon footprint of their flights to determine the amount of carbon offset credits or Verified Emission Reductions needed to address the GHG impact. 3Degrees is a local San Francisco carbon and renewable energy marketing firm that manages the Climate Passport kiosks. 3Degrees sources carbon offset credits from The Conservation Fund's Garcia River Forest Project and the San Francisco Carbon Fund to reduce GHGs emitted into the atmosphere by an amount equivalent to that passenger's trip. The carbon offset credits for Cli- mate Passport are sourced from projects that result in real, quantifiable, and per- manent GHG emission reductions and are third-party verified against the Climate Action Reserve--a rigorous, objective, and transparent standard for offset credits from forestry projects. Climate Passport also allocates $1.50 per tonne of all offset credit sales to the San Francisco Carbon Fund, a city-run fund that invests in GHG reduction projects within San Francisco. The primary airport expense of the Climate Passport system is development of the three kiosks, which cost $190,000 in total.