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Glossary Afforestation Planting of new forests on lands that have historically not contained forests. Airport Emission Reduction Credits issued to airports for reducing criteria air pollutants. Credits (AERCs) AERCs can be used to offset emissions from new or proposed projects. AERCs are not generally tradable outside the oper- ational boundary of the airport that is earning the credits. Airport Improvement The FAA's Airport Improvement Program (AIP) provides Program (AIP) federal capital grants to support airport infrastructure, in- cluding entitlement grants (determined by formulas based on passenger, cargo, and general aviation activity levels) and discretionary grants (allocated on the basis of specific set- asides and the national priority ranking system). Allocation A method for distributing carbon allowances whereby the governing body issues allowances for free. Allocations are often given to regulated entities to reduce the direct costs of complying with cap-and-trade. Allowance A tradable certificate or permit representing the right to emit one tonne of carbon dioxide or carbon dioxide equivalent. An emission allowance or carbon allowance generally refers to an instrument issued by a governing body which collec- tively with all other allowances issued, make up the cap-and- trade program. American Carbon ACR is an offset standards body which was the first private Registry (ACR) voluntary greenhouse gas (GHG) registry in the United States. The ACR issues Emission Reduction Tons (ERTs) for recog- nized offset project categories. American Clean Energy and A comprehensive energy and climate change bill that would Security Act (ACES) have established a nationwide cap-and-trade program. ACES passed in the House of Representatives on June 26, 2009, but never mustered enough support in the Senate to reach the floor for a vote. To date, ACES is the only nationwide cap- and-trade bill to ever pass one House of Congress. American Council A global trade representative of the world's airports. Estab- International lished in 1991, ACI represents airports interests with govern- 62

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Glossary 63 ments and international organizations such as the Interna- tional Civil Aviation Organization (ICAO), develops stan- dards, policies and recommended practices for airports, and provides information and training opportunities to raise standards around the world. Anthropogenic Caused by human activity. In the context of GHGs, anthro- pogenic emissions are produced as the result of human activities. Assembly Bill 32 (AB 32) See California Global Warming Solutions Act. Auction A method for distributing carbon allowances whereby a gov- erning body auctions allowances to the highest bidders. Al- lowance auctions often have cost containment mechanisms such as auction floor and ceiling prices representing the low- est and highest amounts a single allowance can be sold for. Auction Clearing Price The price at which allowances are sold at an allowance auction. Baseline Emissions A measurement of emissions generally taken prior to the im- plementation of an emission reducing activity. Establishing a baseline level of emissions allows an entity to measure the emission reduction benefits of certain activities. Business As Usual (BAU) The emissions that would have occurred without an inter- Emissions vening event. Often BAU calculations are made based on projected emissions without regulations that limit or price GHG emissions. California Global Warming Often referred to as AB 32, this California Law establishes a Solutions Act comprehensive program for reducing GHG emissions in Cal- ifornia. The law requires the California Air Resources Board (ARB) to develop and implement programs to reduce Cali- fornia emissions to 1990 levels, by 2020. ARB's authority to implement a cap-and-trade program originates from AB 32. Cap-and-trade A market-based approach to controlling pollution by pro- viding economic incentives for achieving emission reduc- tions. A central authority, usually a government body, sets a limit or cap on the total amount of a pollutant that can be emitted in a given time period. The limit or cap is established by issuing a limited number of allowances which represent the right to pollute one unit of the regulated pollutant. Allowances can be sold or distributed freely to regulated enti- ties and can be traded amongst entities. At the end of a compli- ance time period, each regulated entity must surrender al- lowances equal to the number of units they polluted during that time period and they must pay a fee if they do not own enough allowances. Over time, the total number of allowances issued reduces, thereby reducing the total amount of pollution. Carbon Allowance A tradable credit representing a unit of CO2e. Carbon al- lowances are generally issued in limited amounts by a gov- ernment body. The total allowances issued in a year, or given time, period represents the cap in a cap-and-trade program.

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64 The Carbon Market: A Primer for Airports Carbon Credit An umbrella term that often encompasses all tradable GHG- based environmental instruments. Generally, a carbon credit refers to a tradable certificate or permit representing the right to emit one metric tonne of carbon dioxide or carbon dioxide equivalent. Carbon Dioxide (CO2) A colorless, odorless, non-poisonous gas that is a normal part of the ambient air. Carbon dioxide is a product of fossil fuel combustion. Although carbon dioxide does not directly impair human health, it is a GHG that traps terrestrial (i.e., infrared) radiation and contributes to the potential for global warming. Carbon Dioxide Equivalent A metric measure used to compare the emissions of the (CO2e) different GHGs based upon their global warming potential (GWP). GHG emissions in the United States are most com- monly expressed as "million metric tons of carbon equiva- lents" (MMTCE). GWPs are used to convert GHGs to carbon dioxide equivalents. Carbon Financial Futures and options contracts issued by the CCX under a Instruments (CFIs) voluntary but binding GHG cap-and-trade system. A CFI- US is a special type of CFI with an expiration starting in 2013 that complies with a potential mandatory GHG cap- and-trade program. Carbon Footprint A measurement of all GHGs that an individual, company, country, or other entity produces or emits. Entities may look to alternative, more efficient, or more environmentally friendly operating methods to lower their carbon footprint. Carbon footprints can be calculated through GHG inventories in order to measure and monitor carbon reductions. Carbon footprints can also be calculated for consumer products, and generally include the emissions associated with collecting raw materials, manufacturing, shipping, end-use and dispos- ing of the product. Carbon Market A market where carbon allowances and offset credits are bought and sold. Carbon Neutral Achieving net zero GHG emissions by balancing the amount of carbon emitted with an equivalent amount sequestered or offset. Often this is achieved through obtaining offset cred- its equal to the number of metric tonnes emitted through a certain GHG emitting activity. Carbon Pollution Reduction The Australian proposed cap-and-trade system that was Scheme (CPRS) originally intended to be implemented in 2010. The program has recently faced significant political resistance and the sta- tus of implementation is now in doubt. Carbon Sequestration The uptake and storage of carbon which can be done natu- rally or through man-made activities. For example, Natural carbon sequestration could be trees and plants absorbing carbon dioxide, releasing the oxygen and storing the carbon.

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Glossary 65 Man-made carbon sequestration is a geoengineering tech- nique for long-term storage of carbon dioxide for the pur- poses of mitigating global warming. Carbon Sink A natural or artificial reservoir that accumulates and stores carbon dioxide. Certified Emission Reduction The credit issued to a developed nation for sponsoring an Credit (CER) emission reduction project in a developing nation. One CER is equal to one tonne of CO2e reduced, avoided, or sequestered. Chicago Climate Exchange North America's only voluntary, yet legally binding, GHG (CCX) reduction and trading program for emission sources and off- set projects. Clean Air Act (CAA) Landmark legislation that was signed into law in the United States in 1970. Many of our existing air pollution laws originate from the CAA. Currently, the Environmental Protection Agency (EPA) is in the process of developing GHG regula- tions based on provisions contained within the CAA. EPA's authority to regulate GHGs in this manner is the subject of some debate. Clean Development A developed nation with emission reduction commitments Mechanism (CDM) sponsors an emission reduction project in a less developed na- tion in return for a certified emission reduction (CER) credit. Climate Action Reserve (CAR) A national offset standards body for the U.S. carbon market. It establishes regulatory quality standards for development, quantification, and verification of GHG emission reduction projects, issuing Climate Reserve Tonnes (CRT) generated from the project and tracking these credits over time. Climate Change The term climate change is sometimes used to refer to all forms of climatic inconsistency, but because the Earth's climate is never static, the term is more properly used to imply a signifi- cant change from one climatic condition to another. In some cases, climate change has been used synonymously with the term global warming; scientists however, tend to use the term in the wider sense to also include natural changes in climate. Climate Reserve Tonne (CRT) The carbon offset credit issued by the Climate Action Reserve. Compliance Market A carbon market established by a governmental body, requir- ing regulated entities to procure and retire allowances or off- set credits equivalent to their emissions from the previous year or other designated time period. The governmental body issues a finite number of allowances establishing an emissions cap. Regulated entities may have allowances issued directly to them, or be required to purchase them from a government run auction or by trading with other regulated entities. Compliance Period A pre-determined period of time, at the end of which a reg- ulated entity in a cap-and-trade system must retire carbon allowances equal to the number of tonnes of CO2e they emit- ted during that designated period of time

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66 The Carbon Market: A Primer for Airports Corporate Average Fuel A federal requirement that automobile manufacturers must Economy (CAFE) achieve certain average fuel economy levels for their entire fleet. Criteria Air Pollutants A group of common air pollutants regulated by the EPA on the basis of criteria and information on health and/or environmental effects of pollution. It includes the six most common air pollutants: ozone, particulate matter, carbon monoxide, nitrogen oxides, sulfur dioxide, and lead. Crite- ria pollutants are the only air pollutants with national air quality standards that have definitions of allowable concen- trations of the substances in the air. Direct Emissions Emissions from sources within an entity's direct control or boundaries. Distributed Generation Electricity generation, usually small in scale, that is produced on-site or close to the entity or entities consuming the power. Early Action Credits Credits issued for voluntary reductions of GHGs prior to the commencement of a mandatory or regulatory program. Electric Generation Sector Consists of facilities and units that generate electricity. Often in a cap-and-trade system, the electric generation sector is regulated, however the regulated portion of the sector is fre- quently confined to electricity generating units or facilities combusting fossil fuels. Emission Intensive Describes processes or facilities that emit large amounts of GHGs in relation to the given quantity of their product output Emissions Releases of gases to the atmosphere (e.g., the release of carbon dioxide during fuel combustion). Emissions can be either intended or unintended releases. Energy Efficiency Credits See White Tags. (EECs) Energy Efficiency Portfolio A regulatory program requiring utilities to achieve certain Standards (EEPS) levels of improved energy efficiency by their end-use cus- tomers. Often EEPS permit trading of white tags between utilities in order to meet compliance requirements. Energy Intensive Describes processes or facilities that use or consume large amounts of energy in relation to the given quantity of their product output. EPA GHG Reporting Rule A regulatory requirement that large GHG-emitting sources report their GHG emissions on an annual basis to the EPA. EU ETS GHG Permit The permit that airlines must obtain in order to operate in the EU after 2012 when airlines become regulated entities. European Union Emission The world's first binding international trading system for Trading System (EU ETS) CO2 emissions. It covers over 11,000 energy-intensive facili- ties across Europe. The aviation sector will be covered for the first time beginning in 2012.

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Glossary 67 European Union Emissions Tradable allowances that regulated entities under the EU ETS Allowances (EUAs) must procure and submit for retirement each year equal to the number of tonnes of CO2e that entity emitted the previous year. Exchanges An organization which hosts a market where stocks, bonds, options, and commodities are traded. Some exchanges allow participants to trade various forms of carbon credits. Flexibility Mechanisms Refers to mechanisms used to help countries meet their Kyoto Protocol commitments. The two mechanisms are the Clean Development Mechanism (CDM) and Joint Implementation (JI). They are used and designed to lower the overall cost of achieving emission targets. Fossil Fuels A general term for buried combustible geologic deposits of organic materials, formed from decayed plants and animals that have been converted to crude oil, coal, natural gas, or heavy oils by exposure to heat and pressure in the Earth's crust over hundreds of millions of years. Global Warming Potential The index used to translate the level of emissions of various (GWP) gases into a common measure in order to compare the rela- tive radiative forcing of different gases without directly cal- culating the changes in atmospheric concentrations. It com- pares the amount of heat trapped by a certain mass of gas to the amount of heat trapped by a similar mass of carbon diox- ide. GWPs are calculated as the ratio of the radiative forcing that would result from the emissions of 1 kg of a GHG to that from the emission of 1 kg of carbon dioxide. Green Branding Activities and initiatives that companies engage in with the goal of having consumers associate that company with envi- ronmental conservation, lower carbon footprints, and sus- tainable business practices. Greenhouse Gas (GHG) Any gas that absorbs infrared radiation in the atmosphere. GHGs include, but are not limited to, water vapor, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydro- chlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocar- bons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluo- ride (SF6). "Carbon" is often used interchangeably with GHGs. Greenhouse Gas Credit See Carbon Credit. Greenhouse Gas Effect The trapping and build-up of heat in the atmosphere (tro- posphere) near the Earth's surface. Some of the heat flowing back toward space from the Earth's surface is absorbed by water vapor, carbon dioxide, ozone, and several other gases in the atmosphere and then reradiated back toward the Earth's surface. If the atmospheric concentrations of these GHGs rise, the average temperature of the lower atmosphere will gradually increase. Hydrofluorocarbons (HFCs) Compounds containing only hydrogen, fluorine, and car- bon atoms. They were introduced as alternatives to ozone- depleting substances in serving many industrial, commercial,

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68 The Carbon Market: A Primer for Airports and personal needs. HFCs are emitted as by-products of in- dustrial processes and are also used in manufacturing. They do not significantly deplete the stratospheric ozone layer, but they are powerful GHGs with global warming potentials ranging from 140 (HFC-152a) to 11,700 (HFC-23). Improved Forest Involves forest management activities that maintain or Management (IFM) increase carbon stocks on a forested land. Management activ- ities can include thinning diseased or suppressed trees, manag- ing competing brush and short-lived forest species, increasing the stocking of trees on under-stocked areas, amongst others. Indirect Emissions Emissions that are the consequence of activities that take place within a facility or organizational boundary, but that occur at sources owned or controlled by another entity. Industrial Sector Consists of operations that create a finished, usable product. Intensity-Based GHG Emission targets based on the quantity of emissions per unit Emission Targets of gross domestic product. Intergovernmental Panel on The IPCC was established jointly by the United Nations Climate Change (IPCC) Environment Programme and the World Meteorological Organization in 1988. The purpose of the IPCC is to assess information in the scientific and technical literature related to all significant components of the issue of climate change. The IPCC draws upon hundreds of the world's expert scien- tists as authors and thousands as expert reviewers. Leading experts on climate change and environmental, social, and economic sciences from some 60 nations have helped the IPCC prepare periodic assessments of the scientific under- pinnings for understanding global climate change and its consequences. With its capacity for reporting on climate change, its consequences, and the viability of adaptation and mitigation measures, the IPCC is also looked to as the official advisory body to the world's governments on the state of the science of the climate change issue. For example, the IPCC organized the development of internationally accepted meth- ods for conducting national GHG emission inventories Inventory-Based Programs A bottom-up approach to emissions accounting in which companies and organizations quantify and report their emis- sions according to a uniform accounting standard. Partici- pants in a registry agree to measure and report the GHG emissions data from their business activities. ISO 14064 The most recent addition to the family of the ISO 14000 series of international standards which relate to environ- mental management and environmental management sys- tems. It provides businesses, governments and other organi- zations a set of tools and methods to measure, quantify and reduce GHGs. Joint Implementation (JI) A country with an emission reduction commitment hosts an emission reduction project to generate emission reduction units (ERUs). The host country essentially gives away the

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Glossary 69 right to claim these reductions and sells them to another country. Kyoto Protocol An international agreement struck by nations attending the Third Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (held in Decem- ber of 1997 in Kyoto, Japan) to reduce worldwide emissions of GHGs. If ratified and put into force, individual countries have committed to reduce their GHG emissions by a speci- fied amount. Methane (CH4) A hydrocarbon that is a GHG with a global warming potential most recently estimated at 21. Methane is produced through anaerobic (without oxygen) decomposition of waste in land- fills, animal digestion, decomposition of animal wastes, pro- duction and distribution of natural gas and petroleum, coal production, and incomplete fossil fuel combustion. The at- mospheric concentration of methane has been shown to be in- creasing at a rate of about 0.6% per year and the concentration of about 1.7 parts per million by volume (ppmv) is more than twice its pre-industrial value. However, the rate of increase of methane in the atmosphere may be stabilizing. Midwest Greenhouse Gas A regional cap-and-trade program with the Midwestern States Reduction Accord (MGGRA) of Minnesota, Wisconsin, Illinois, Iowa, Michigan, Kansas and the Canadian Province of Manitoba originally partici- pating. The governors of the participating states, none of whom were governor when the program was agreed to, in 2011 announced that the states would no longer link under regional cap-and-trade and instead would focus on other mechanisms for attracting investment in the states. New Zealand Emission The New Zealand GHG cap-and-trade program which was Trading System (NZ ETS) first implemented in 2010. New Zealand Unit (NZU) Tradable allowances that regulated entities under the NZ ETS must procure and submit for retirement each year equal to the number of tonnes of CO2e that entity emitted the pre- vious year. Nitrous Oxide (N2O) A powerful GHG with a global warming potential most re- cently evaluated at 310. Major sources of nitrous oxide in- clude soil cultivation practices, especially the use of commer- cial and organic fertilizers, fossil fuel combustion, nitric acid production, and biomass burning. Offset Credit A tradable credit representing a unit of CO2e that is reduced, avoided, or sequestered to compensate for emissions occur- ring elsewhere. Offset Protocol The rules established by offset standard bodies or regulatory bodies which set the criteria for a project to be eligible to earn offset credits. Offset Standards Body Organizations that establish standards for developing, quanti- fying, and verifying GHG reduction projects. Eligible projects

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70 The Carbon Market: A Primer for Airports that have successfully completed the offset registration process are eligible to receive offset credits issued from the offset standards body. Offset standards bodies generally have off- set credit tracking capabilities which allow buyers and sellers of offset credits to transact with one another. Ozone-Depleting Substances A family of man-made compounds that includes, but is not (ODS) limited to, chlorofluorocarbons (CFCs), bromofluorocar- bons (halons), methyl chloroform, carbon tetrachloride, methyl bromide, and hydrochlorofluorocarbons (HCFCs). These compounds have been shown to deplete stratospheric ozone, and therefore are typically referred to as ODSs. Passenger Facility Charge A federal authorization that permits airports to charge pas- (PFC) sengers for the use of airport infrastructure outside of the contractual use and lease agreement relationship between airport and airlines. Perfluorocarbons (PFCs) A group of human-made chemicals composed of carbon and fluorine only. These chemicals (predominantly CF4 and C2F6) were introduced as alternatives, along with hydrofluorocar- bons, to ozone-depleting substances. In addition, PFCs are emitted as by-products of industrial processes and are also used in manufacturing. PFCs do not harm the stratospheric ozone layer, but they are powerful GHGs: CF4 has a global warming potential (GWP) of 6,500 and C2F6 has a GWP of 9,200. Points of Regulation An entity or class of entities for whom the burden of compli- ance falls. In a GHG cap-and-trade system the point of reg- ulation can be the entity directly emitting GHGs or an entity who is supplying fossil fuels to an end-use emitter. Power Purchase Agreement A contract between an entity that generates power and an (PPA) entity that purchases and consumes electricity. Pre-Compliance Market A market for offsets created by participants buying and sell- ing allowances and offsets in anticipation of future regula- tions. Entities that anticipate being regulated in the future may purchase offset credits to lessen their future exposure under a cap-and-trade program. By definition, in a pre- compliance market, there is no regulation, thus there func- tionally is little difference between the pre-compliance market and the voluntary market, other than demand driv- ers. In the voluntary market, demand is often driven by en- vironmental stewardship or green branding; in the pre- compliance market demand is driven by a desire to reduce future risk. Reforestation The restocking of existing forests and woodlands which have been depleted. Forests are natural carbon sinks, absorbing carbon dioxide through photosynthesis. Regional Greenhouse Gas A mandatory cap-and-trade program covering GHG emis- Initiative (RGGI) sions from power generators in the Mid-Atlantic and New England. RGGI states include: Connecticut, Delaware, Maine,

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Glossary 71 Maryland, Massachusetts, New Hampshire, New Jersey (through 2011), New York, Rhode Island, and Vermont. Regulated Entity See Point of Regulation. Renewable Electricity See Renewable Portfolio Standard. Standard (RES) Renewable Energy Tradable instruments that represent proof that one unit of Certificates (RECs) electricity was generated from a renewable energy resource. Units are usually in MWhs or kWhs. Renewable Fuel Standard A regulatory program that ensures that transportation fuel (RFS) sold in the United States contains a minimum volume of re- newable fuel. EPA considers the lifecycle GHG impacts of certain renewable fuels to ensure that renewable fuels emit fewer GHGs than the petroleum fuel that it replaces. Produc- ers of renewable fuels are given credits which can be sold to fuel suppliers with compliance requirements. Renewable Portfolio A regulatory program that requires utilities and other elec- Standard (RPS) tricity suppliers to ensure that a certain amount of their delivered electricity load is sourced from a renewable energy resource. RPS programs generally permit the use of RECs, which can be traded between generators, utilities, and other market participants. Sequestration The process of removing carbon from the atmosphere and depositing it in a reservoir. Sulfur Hexafluoride (SF6) A colorless gas soluble in alcohol and ether, slightly solu- ble in water. A very powerful GHG used primarily in elec- trical transmission and distribution systems and as a di- electric in electronics. The global warming potential of SF6 is 23,900. Synthetic Gas A manufactured product chemically similar in most respects to natural gas, resulting from the conversion or reforming of petroleum hydrocarbons. Often, it may be substituted easily for, or interchanged with, pipeline quality natural gas. The Cap The number of units of a pollutant that a regulating body sets for which all regulated entities cannot exceed in a given time frame. The Carbon Disclosure An international organization based in the United Kingdom, Project which works with shareholders and corporations to disclose the GHG emissions of major corporations. The Climate Registry A nonprofit organization formed to create consistent GHG emissions standards and reporting methods for businesses, municipalities, and other organizations. Trade Exposed Characterized by firms that compete in a global market that may be competitively disadvantaged by an additional price for GHG emissions for which competitors in non-GHG re- strained countries do not have to account.

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72 The Carbon Market: A Primer for Airports Transportation Sector Consists of private and public passenger and freight trans- portation, as well as government transportation, including military operations. True Up The event at the end of a compliance period in a cap-and- trade program in which regulated entities must retire al- lowances and offsets equivalent to their emissions from the previous year or designated time period. United Nations Framework The international treaty unveiled at the United Nations Convention on Climate Conference on Environment and Development (UNCED) Change (UNFCCC) in June 1992. The UNFCCC commits signatory countries to stabilize anthropogenic (i.e., human-induced) GHG emis- sions to "levels that would prevent dangerous anthropogenic interference with the climate system." The UNFCCC also requires that all signatory parties develop and update national inventories of anthropogenic emissions of all GHGs not otherwise controlled by the Montreal Protocol. Voluntary Airport Low A program to encourage airports to voluntarily reduce Emission Program (VALE) emissions from aircraft, vehicles, ground support equip- ment (GSE), and infrastructure at commercial service air- ports in areas designated as nonattainment and/or mainte- nance by the EPA's NAAQS. The program is intended to reduce pollutants and precursors, improve local air quality, and accelerate the use of new and cleaner technology. Air- ports are eligible to receive airport emission reduction cred- its (AERCs) for projects that reduce emissions of certain air pollutants, not including GHGs. Verified Carbon Standard An offset standards body that establishes regulatory quality standards for development, quantification, and verification of GHG emission reduction projects, issuing Verified Carbon Units (VCUs) generated from the project and tracking these credits over time. Voluntary Market Characterized by entities that are not required to make GHG reductions but wish to purchase carbon credits to offset their emitting activity in the name of environmental stewardship or for some other voluntary purpose. Verified Carbon Unit (VCU) The carbon offset credit issued by the Verified Carbon Standard. White Tags An instrument that represents proof that one unit of electric- ity was saved, usually through a program sponsored by an electric utility responding to requirements from an energy efficiency standard.