National Academies Press: OpenBook

The Carbon Market: A Primer for Airports (2011)

Chapter: Chapter 3 - North American Compliance Carbon Markets

« Previous: Chapter 2 - Carbon Offset and Value Opportunities for Airports
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Suggested Citation:"Chapter 3 - North American Compliance Carbon 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 30
Suggested Citation:"Chapter 3 - North American Compliance Carbon 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.
×
Page 30
Page 31
Suggested Citation:"Chapter 3 - North American Compliance Carbon 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.
×
Page 31
Page 32
Suggested Citation:"Chapter 3 - North American Compliance Carbon 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.
×
Page 32
Page 33
Suggested Citation:"Chapter 3 - North American Compliance Carbon 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 33

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Currently, the only mandatory operating carbon market in North America is the Regional Greenhouse Gas Initiative (RGGI), covering emissions from power generators in parts of the Mid-Atlantic and New England regions of the United States. No comprehensive federal or other carbon markets are operational and there is little momentum in Congress to pass such legisla- tion at this time. The Canadian government has announced its intentions to wait until the United States acts before enacting a GHG cap-and-trade scheme. Other states and regions, California, for example, are progressing with the implementation of their own carbon cap-and-trade pro- grams. Figure 4 summarizes states that are participating or have committed in the future to par- ticipate in some form of state or regional cap-and-trade program. Despite a varied level of commitment to reduce emissions from a number of states, the ten RGGI states and California are currently the only states with potential compliance demand for offset credits. Demand in RGGI states is currently very low, as most regulated entities have suf- ficient allowances to meet their compliance requirements. California regulated entities are likely to have more demand, although the compliance market in California is just developing, and the cap-and-trade program is not scheduled to begin until 2013. 3.1 State and Regional Regulatory Compliance Markets 29 C H A P T E R 3 North American Compliance Carbon Markets Key Takeaways for Airports • The only compliance carbon markets in the United States take place at the regional and state levels. • Airports are not currently regulated entities under any compliance cap-and- trade market and are not expected to be in the near future. • Carbon market opportunities for airports at this time will largely remain in the voluntary market. Key Takeaways for Airports • The United States state and regional compliance markets offer limited opportu- nity for airport participation at this time. • RGGI allows offset credit use for compliance, but demand in the market has yet to materialize. • The California market represents the most likely source of demand for offset credits once it is fully implemented in 2013.

3.1.1 Regional Greenhouse Gas Initiative RGGI is the first operational regional mandatory climate change program in North America. RGGI regulates the CO2 emissions of fossil fuel-fired power plants located in participating New England and Mid-Atlantic states. Currently 10 states are signatories of RGGI: Maine, New Hamp- shire, Vermont, New York, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware, and Maryland. New Jersey, however, announced that it will not participate in RGGI beyond 2011. In its current form, RGGI utilizes a market-based system to reduce CO2 emissions from the power sector through cap-and-trade. Covered generators are collectively required to hold emis- sions flat from the initial implementation date in 2009 through 2014 and then decline 2.5% per year through 2019. RGGI’s ultimate goal is to achieve CO2 emission reductions at least 10% below the 1990 level by 2020 (RGGI n.d.b). RGGI only applies to fossil fuel-fired electrical gen- erating plants with a rated capacity equal to or greater than 25 megawatts (MW). Offset credits are permitted to be used for compliance, but only for a small fraction (currently 3.3%) of a regulated unit’s compliance obligation. At this time, only the following five project categories are eligible to generate CO2 offset credits in RGGI: • Landfill methane capture and destruction; • Reduction in emissions of sulfur hexafluoride (SF6); • Carbon sequestration due to afforestation; • Reduction or avoidance of CO2 emissions from natural gas, oil, or propane end-use combus- tion due to end-use energy efficiency in the building sector; and • Avoided methane emissions from agricultural manure management operations. A total of 11 auctions have been held. The auction clearing price has steadily decreased since the second auction, with the most recent auctions clearing at or near the statutory minimum re- serve price of $1.86 per allowance, an indication that the program is over-supplied with emis- sion allowances (RGGI n.d.b.). 30 The Carbon Market: A Primer for Airports Source: (WCI n.d. & RGGI n.d.a.) Figure 4. U.S. regional GHG initiative participation.

With the program over-supplied, and demand for allowances and offset low, regulated enti- ties in RGGI are likely to have minimal demand in the near future for airport offset credits. No airports or airport-owned facilities currently come under the direct compliance umbrella of RGGI. Compliance costs from regulated power producers will likely be passed through elec- tricity purchases to end-users such as airports; however, given current low pricing levels, the impacts in the short term are expected to remain minimal. 3.1.2 California Assembly Bill 32 California passed the California Global Warming Solutions Act in 2006, which is commonly referred to as Assembly Bill 32 (AB 32). AB 32 requires the California Air Resources Board (ARB) to develop a GHG reduction and mitigation plan through 2020. On December 16, 2010, ARB voted 9 to 1 in favor of cap-and-trade program rules solidifying a 5-year process that began with the passage of the landmark climate change legislation, California AB 32. The cap-and-trade program is expected to begin in 2013 for electricity generators and indus- trial facilities, while fuel suppliers will come under the cap in 2015. Compliance periods will occur in 3-year blocks, with the exception of the first compliance period, which will only encom- pass 2013 and 2014. The first allowance “true-up” will be in 2015 when regulated entities will be required to retire allowances and a limited amount of offset credits, if desired, for their 2013 and 2014 emissions. The program will require electricity-generating facilities, industrial facilities, and suppliers of natural gas and other fuels to account for their emissions (downstream emissions in the case of fuel suppliers) each year. The rule enumerates ten specific industrial processes, along with facil- ities that generate their own electricity, and generally includes facilities with stationary fossil fuel combusting units with emissions in excess of 25,000 tonnes of CO2e (EPA—California, Air Resources Board n.d.). While the enumerated processes identify processes and operations specif- ically designed to be covered by the program, any facility with emissions greater than 25,000 tonnes of CO2e could be covered. Thus, airports in California with stationary emissions in excess of 25,000 tonnes of CO2e may be regulated should the rules be adopted in their current form. As regulated entities anticipate future compliance requirements, the market for offset credits in California has already started to develop. The following are four offset project types expected to be eligible in California: • Urban Forestry, • Ozone Depleting Substances Projects, • Livestock Manure Projects, and • Forestry Projects. AB 32 was designed to eventually be implemented with a federal or regional cap-and-trade pro- gram. California was an original partner of the Western Climate Initiative (WCI), and would likely merge with other states and provinces should enough partner jurisdictions agree to participate. 3.1.3 Western Climate Initiative In 2007, the governors of Arizona, California, New Mexico, Oregon, and Washington began working toward the establishment of a regional cap-and-trade program to regulate GHG emissions in the region. The governors of Montana and Utah, and the premiers of British Columbia, Man- itoba, Ontario, and Quebec, later joined the effort to collectively form the WCI. North American Compliance Carbon Markets 31

On September 23, 2008, the leaders of the member states and provinces (the Partners) released a design recommendation paper which was intended to serve as the framework for a cap-and- trade GHG reduction scheme. The points of regulation for the WCI-proposed cap-and-trade program are generally: (1) the point of combustion for electricity producers; (2) the point of combustion for industrial facili- ties that directly emit 25,000 tonnes CO2e or more per year; and (3) fossil fuel suppliers for emis- sions associated with the end-use of their sales (WCI n.d.). Implementation by each state and province of the WCI cap-and-trade program is dependent on that state or province passing leg- islation that adopts the scheme. Thus far, it appears as though only California (linking the cap-and-trade from AB 32), British Columbia, and Quebec have taken the necessary steps in order to be prepared to participate when the program begins in 2013, although it is possible that roadblocks still exist, even for these juris- dictions. New Mexico has passed rules to implement a state cap-and-trade program, should they fail to participate in WCI; however, a political battle is currently being waged that may derail any cap-and-trade participation in the near future. 3.2 Federal Approaches to Limiting GHGs 32 The Carbon Market: A Primer for Airports Key Takeaways for Airports • Legislation creating a federal compliance cap-and-trade program is unlikely in the near future—little legislative momentum exists at this time. • Without legislation the voluntary market will be the primary market for airport offset credits. 3.2.1 Legislative Attempts Numerous attempts have been made in Congress to enact legislation that would place a bind- ing cap on total United States emissions; however, to date, no bill has successfully passed through both Houses of Congress. Further, very little momentum exists in Congress at this time to set limits on GHG emissions. In June 2009, the House of Representatives passed the American Clean Energy and Security Act of 2009 (ACES), marking the first time a comprehensive climate change bill passed either House of Congress. The economy-wide carbon cap-and-trade bill called for reduction of GHG emissions to 83% below 2005 levels by 2050 (Committee on Energy and Com- merce June 2009). Despite an unprecedented level of industry consensus on many core issues contained within the proposed legislation, the Senate was unable to garner enough support for a companion bill, leaving the future of carbon legislation in a state of relative flux. Under ACES, neither airports nor airlines would have been directly regulated, although both would have likely seen increases in the costs of fuel and electricity due to upstream regulation. 3.2.2 Regulatory Approaches In the absence of specific federal legislation regarding GHGs, the EPA has been exercising Clean Air Act (CAA) authority to regulate GHGs, consistent with the 2007 U.S. Supreme Court decision in Massachusetts v EPA (Massachusetts v EPA 2007). The Court ruled that the GHGs

were considered to have the potential to impact the environmental and human health, which falls under the jurisdiction of the EPA to assess and regulate. This authority originates from existing provisions contained within the CAA, which was originally passed by Congress in 1970, with some significant amendments being added over the last 40 years. EPA has initiated a num- ber of regulations covering GHGs impacting both mobile and stationary sources under the CAA which are summarized in Table 7. North American Compliance Carbon Markets 33 Key Takeaways for Airports • The EPA currently has authority to regulate GHG emissions and is implementing a series of regulations to track and limit GHG emissions. • Current regulations do not create any extra demand for offset credits. Depend- ing on how regulations evolve, offset credits could serve as a compliance option for regulated entities. • Airports (with stationary sources emitting less than the 25,000 mtCO2e/yr) do not currently come under the purview of EPA GHG regulations and are not expected to in the near future. Table 7. Summary of EPA GHG regulations. weivrevOeluR Airport Applicability Mandatory GHG Reporting Rule - As of January 1, 2010, large emitters of GHGs must inventory and report GHG emissions. - General threshold for reporting is 25,000 mt CO e/yr additive of all stationary sources. - Large airports are required to report (i.e., Boston Logan Airport’s emissions are greater than 25,000 mtCO e/yr threshold and it is required to report). Motor Vehicle GHG Standards - Effective January 1, 2011, vehicle manufacturers have emissions target for light duty vehicles. - Light duty vehicles include passenger cars, light duty trucks and medium duty passenger vehicles. - Rule directly regulates vehicle manufacturers, but could impact airport vehicle purchases in the future (i.e., cost pass through). GHG Permitting for New and Modified Large Sources - New or modified sources of GHG emissions need to address GHG emissions in permitting. - New facility resulting in GHG emissions of 100,000 tons CO2e per year. - Modification to an existing facility resulting in GHG emissions in excess of 75,000 tons CO2e per year. - An airport would only be impacted by these rules if it exceeded new or modified facility emissions, thresholds. Source: EPA - Climate Change. Regulatory Initiatives. http://www.epa.gov/climatechange/emissions/ghgrulemaking.html (accessed April 21, 2011). 2 2

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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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