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SUMMARY The Carbon Market: A Primer for Airports Introduction The objective of ACRP Project 11-02 (Task 18), "Primer on Carbon Credits and Revenue Opportunities for Airports" is to prepare a primer for airport owners, managers, and oper- ators that describes the evolving "carbon markets" and identifies revenue opportunities for airports in the United States. To date, there have been limited examples of airports generat- ing additional revenue from carbon markets. There are a variety of reasons for the lack of participation to date. First, carbon, renewable energy, and other related environmental mar- kets are relatively new in the United States and generally lack a federal regulatory system to drive significant demand for many potential revenue opportunities. Second, airports have unique limitations, both in terms of airport operating rules and land holdings, which pre- vent certain project types from taking place on airport grounds. Despite these restrictions, certain project types related to these markets align well with air- ports. There are many examples of airports investing in projects and practices that lower their carbon footprints and improve the environment. There are increasing examples of air- ports installing solar panels and using other forms of renewable energy. Exploring ways to use energy more efficiently is common practice amongst airport managers and a proven way to lower carbon footprints. However, as this Primer will discuss, not all activities that lower an airport's carbon footprint will result in an opportunity to generate additional revenues in these markets. The concepts and mechanisms that make up carbon and other environmental markets are unique. Terms like "cap-and-trade" and "carbon credit" are becoming more common in our vernacular; however, there is often a lack of understanding behind the key principles associated with these and related terms. This Primer is intended to provide some guidance and background to the airport community of some of the concepts and terms that apply to carbon markets. Particularly given the dynamic nature of carbon markets, a core under- standing of certain principles is critical to airport owners that may be seeking opportunities for additional revenue in carbon markets in the future. Currently, most airports in the Unites States are not directly required by law to reduce their GHG emissions, nor are they expected to in the immediate future. In fact, with only a few states implementing regional carbon cap-and-trade programs, there are very few regu- lations requiring substantial GHG reductions for any type of entity. Therefore, outside of a handful of airports in the past that have been required to reduce or monitor emissions as a prerequisite for a building permit or pursuant to a city ordinance, most of the potential air- port participation discussed herein relates to hosting voluntary projects and evaluating the potential to sell the associated carbon credits in what is commonly referred to as the voluntary carbon market. 1

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2 The Carbon Market: A Primer for Airports Findings There are two primary sources of value that can be created for airport operators that host carbon offset and renewable energy projects. The first is monetary. Developers of projects can sell the environmental benefits of their projects in the form of offset credits or renew- able energy credits (RECs). By selling these credits, however, the airport operator in essence gives away the right to claim their own emission reduction or renewable electricity genera- tion in turn for a defined revenue stream. The second is reputational value and good envi- ronmental stewardship. In order to be fully recognized for the environmental benefits of a project, an airport sponsor would need to retire, which is to say remove from circulation, the credit to ensure no other person can claim the environmental benefits of the project. The act of retiring a credit effectively locks in the link of the environmental attributes to the per- son or entity that elected to retire the credit. The weighing of these two benefits--monetary vs. reputational and stewardship--is critical for airport operators to understand as they consider projects. Revenue opportunities for United States airports in carbon and renewable markets are limited at this time by a number of factors. First, the lack of comprehensive national reg- ulatory requirements in the United States for GHG emission reduction or renewable gen- eration mandates has resulted in limited demand and overall weak pricing for credits domestically. Second, there are limited activities or projects on airport grounds that can feasibly be implemented by airports that will lead to sufficient credits and revenue to justify project spon- sorship. Airports sponsors engage in many projects that reduce airport-related emissions. While these projects often have a positive impact on the environment and lower an airport's carbon footprint, in many instances the activity is not conducive to selling the credit asso- ciated with the activity. Third, safety and other regulatory restrictions limit the types of projects that can be implemented on airport grounds. While there are numerous examples of airports installing renewable energy systems, to date, no United Statesbased airports have hosted an on-site GHG reduction project for which carbon offset credits were generated and later sold. The types of activities that airports typically engage in do not align with many of the formally recognized offset program types. Further, offset project types that could be hosted at airports would generate relatively few offset credits and limited future revenue to economically drive the project based solely on the additional revenue from offset credits. In a case study performed for this Primer at the Austin Bergstrom International Airport in Austin, Texas, the research team considered an organic waste composting project whereby organic waste usually sent to landfills would be separated and composted in an organic waste composting system to generate offset credits. The project would result in minimal offset credits, netting an estimated $699 a year. Revenue at this level would likely not be substan- tial enough to justify the costs of the project, particularly if increased revenues were the sole motivation for hosting a project. The research team examined a pending reforestation project at the Montreal-Mirabel Inter- national Airport in Mirabel, Canada. The airport has partnered with a carbon offset proj- ect developer to plant approximately 96,000 tree saplings in between access roads which con- nect the airport terminal building to the local highway. In total, it is estimated that the project will generate 16,382 offset credits and has the potential to net the project developer hundreds of thousands of dollars over the lifetime of the project.

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Summary 3 In addition to examining opportunities for airports to host projects that generate offset credits, the Primer also examines the possibility of generating RECs--a different type of environmental credit--from renewable energy projects sponsored by airports. While offset credits refer to tradable instruments directly associated with GHG reduction projects, RECs represent another tradable environmental instrument that may present revenue opportuni- ties for airports. The definition of RECs varies slightly program to program but generally represents the environmental attributes of renewable electricity generation, including its low or zero carbon emissions. Thus, in the United States, renewable energy generally would not qualify to generate offset credits. The installation of solar panels at airports has been the most common form of renewable energy project, although airports to date have generally not sold the RECs associated with the renewable generation. In select states, hosting solar generation projects has the potential to generate the greatest amount of revenue in either the carbon or REC markets. In a case study performed at the Meadows Field Airport in Bakersfield, California, the air- port entered into a contract with a solar service provider to install a 744 kW solar energy sys- tem on site. As part of the arrangement, the county of Kern, the owner and operator of the airport, retained the rights to half of the RECs generated from the project. In this example, the county retains about 1,600 RECs per year. The value of RECs varies greatly based on where a project is located, and due to the nature of the California REC market, RECs from the Bakersfield project may be worth only a few dollars apiece--although policy changes may soon increase those values. However, a similarly situated project located in select Mid- Atlantic and Northeastern states could be worth several hundred dollars per REC due to policies in place, resulting in revenues of several hundreds of thousands of dollars. Revenues from selling RECs from solar generation will likely be diminished to some degree by the sub- stantially higher cost of installing solar panels over other more traditional forms of energy. Conclusions and Recommendations Airport operators interested in participating in carbon and other related environmental markets must determine at the outset their motivations. If they are motivated by environ- mental stewardship and the associated reputational benefits, there exist opportunities for airports to increase efficiency, reduce GHGs, and generate renewable power. Replacing old and inefficient equipment, improving insulation, and other measures that allow energy to be used more efficiently should all be considered as ways to demonstrate a commitment to the environment and to decrease an airport's carbon footprint. Other measures, such as planting trees along access roads (or other locations that do not interfere with or violate aviation regulations) and composting organic waste can have incremental GHG impacts, but when viewed with other actions can help boost an airport's environmental reputation. Significant revenue opportunities for airports to generate carbon credits and sell into mar- kets for a revenue stream have yet to materialize in the United States as no comprehensive, mandatory carbon trading scheme exists to drive a robust price on carbon credits. The car- bon offset project types that are traditionally recognized to produce salable carbon offset credits in the United States do not align well with airport infrastructure or can be challeng- ing to implement due to airport safety regulations. These project types include managing organic waste and planting trees onsite. While these are viable offset projects available to air- ports, the number of offset credits that can be generated from such projects is likely to be limited. Relative to other installations and institutions, airports have low on-site emissions limiting the number of offset credits that can be earned for reducing emissions. Equally,

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4 The Carbon Market: A Primer for Airports airports have limitations on landholdings, reducing opportunities for generating offset cred- its from changes in land use. Improving energy efficiency may have the greatest impact on an airport's carbon footprint while also providing energy cost savings; however, revenue opportunities from selling offset credits may be even more limited than other offset project types due to the current state of domestic offset standards. Some offset standards bodies do not recognize energy efficiency as an eligible project type limiting demand in the voluntary market. More potential revenue opportunities exist in renewable energy markets through the sale of RECs from onsite renewable generation projects. The value of these RECs is largely determined based on what renewable technology is being implemented and where the project is located. Airport operators should work closely with market experts to ensure that they are monetizing the RECs appropriately and guarantee the revenue through a binding contract vehicle. An airport operator motivated by potential increased revenue streams may find fewer opportunities, most of which do not outweigh the diminished ability to claim environmen- tal benefits. The current lack of comprehensive federally regulated carbon markets in the United States, along with other airport specific restrictions, limits revenue opportunities from hosting offset and renewable energy projects and selling the associated credits. At this time, and in most cases, there is more value to airports in reputational benefits from GHG reductions and renewable generation than there is from additional revenue streams. For this reason, the following actions are recommended to airport operators: Identify the motivation behind participating in carbon and environmental markets and weigh the balance between the cost-benefits and environmental reputational benefits. Develop a robust GHG inventory to track GHG emissions. Inventories allow airports to measure GHG reductions from various activities and share improvements with the pub- lic. Further, in the event that an airport operator elects to sponsor an offset project, mea- sured baseline emissions are often a prerequisite. Having an existing GHG inventory, particularly if it is developed through one of the leading GHG inventory organizations, can help expedite the offset project registration process in the future. Identify emission reduction activities at the airport and see if they align with major offset standard bodies' offset protocols. Projects most likely to be available to airports are manag- ing organic waste and planting trees onsite. Consider installing renewable power systems. Solar and other renewable power systems in states that have regulations requiring certain levels of solar installations or small power systems will have the greatest revenue opportunities to airports.