Contracting for Carbon Emissions Reductions Under the CDM
The United Nations Framework Convention on Climate Change categorizes carbon PES under the rubric of land use, land use change, and forestry projects (LULUCF). Within this category, only afforestation and reforestation projects are currently eligible to participate in the Clean Development Mechanism (CDM) to the Kyoto Protocol, and these types of projects have been underrepresented among emissions reduction projects under the CDM. Nevertheless, the CDM experience has fostered the development of contract-drafting guidance and template contracts that address the unique needs associated with contracting for emissions reductions.
An Emissions Reduction Purchase Agreement (ERPA) under the CDM is a forward contract for the purchase of emissions reductions credits - the buyer agrees to pay a specific price for certified emissions reductions that are to be generated by a project and certified according to CDM standards. While not perfectly suited to the PES context, these agreements provide lessons for contracting for carbon PES outside of the CDM context.
Template Emissions Reduction Purchase Agreements
The following organizations and agencies have developed template ERPAs for use by CDM participants:
CERSPA - Provides a template written from the seller's perspective, along with guidance documents in English, Spanish, Portuguese, and Chinese.
World Bank Carbon Finance Unit- Offers templates for the purchase of certified emissions reductions (CERs) and verified emissions reductions (VERs). VERs differ from CERs in that VERs are not certified under the CDM and cannot be used to meet emissions reduction targets under Kyoto.
DISCLAIMER: The template contracts, documents, and links on this site are offered to highlight the key issues that should be considered in PES and REDD transactions, not to provide a substitute for experienced, local legal counsel. As this field is evolving rapidly, it will be essential to engage legal counsel in conjunction with any PES transaction to ensure that any agreements reflect the latest developments in the field and comply with all current local and national legislation.