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Introduction and Background 9
rectly impacted by a cap-and-trade scheme when regulated power and fuel producers pass the
costs of GHG regulation on to end users.
Allowances can be traded (bought or sold) among other market participants. With a limited
number of allowances available in the system to cover the emissions from regulated entities and
facilities, allowances become a demanded commodity. If the price of allowances is driven high
enough, regulated entities and facilities will find that investing in and implementing new, low
emitting technologies and operational practices will be a lower cost alternative to procuring
allowances in the marketplace. When the cost of reducing emissions is high and allowance prices
are low, the preferred economic option for compliance will be to purchase allowances more and
reduce emissions less. Conversely, when the costs of allowance prices are high and the cost of
reducing emissions is low, the impetus will be to adjust emitting activities before purchasing
costly allowances.
An "offset" credit represents a tonne of CO2e; however, unlike an allowance, an offset credit
represents a tonne that is avoided, captured, or sequestered from a source that is not required by
law to reduce emissions, and can be used to compensate for emissions made elsewhere. Often
cap-and-trade system rules permit the regulated entities to procure offset credits and use them
toward their compliance requirements as an added flexible means to comply. The number of
offset credits used for compliance by an entity or facility is often limited by a total number of
offset credits or by a percentage of that entity's total emissions during a compliance year. Unlike
allowances, offset credits can also have monetary value outside of regulatory or compliance
cap-and-trade systems as created by non-regulated carbon markets, called the voluntary market.
In the voluntary market, there are companies, governments, and individuals that may wish to
purchase and retire offset credits in order to "offset" or reduce a particular GHG emitting activ-
ity attributed to them. As will be discussed later in the Primer, retiring offset credits--taking them
out of circulation--locks in the environmental benefits associated with the GHG offsetting activ-
ity to whoever is retiring the offset credit. A common example in the transportation sector is a
passenger who pays incrementally to offset the emissions resulting from the air travel in order
to claim the trip as "carbon neutral." While the flight in this example still emits GHGs from the
combustion of jet fuel, the passenger can claim carbon neutrality for his or her own journey
as the result of a reduction in GHGs made elsewhere. An overview of carbon market instruments
is presented in Figure 1.
Offset credits are generated from offset projects and include a wide variety of activities and instal-
lations that are generally governed by strict protocols. Whether an offset credit originating from
one of these projects has any value largely depends on whether there is either a regulatory
program or a voluntary offset standard that recognizes that particular project type. Section 2.1,
Offset Credit Origination, will provide a description of typically recognized offset project types
in the United States and explore opportunities for airports to potentially engage.
1.3 Carbon Projects at Airports
Airport sponsors are increasingly taking action to reduce their carbon footprint, motivated by
potential future regulations, local requirements, and good environmental stewardship. Numer-
ous states have already taken action to address GHG emissions, with some mandating specific
reduction targets. Such actions--along with the possibility of federal legislation--are likely to
result in downstream costs (increased electricity and fuel costs) for airport sponsors.
Early preparation and planning for GHG emission reductions can reduce regulatory risks and
provide insight into the fiscal impacts of achieving GHG reductions. Hence, one challenge airport
