Contracting for Carbon

Forest carbon payments – payments for restoring or planting forest, or for preventing forest degradation or deforestation – can help to prevent and reverse forest loss. However, forest carbon transactions today raise many challenging issues for participants, including difficult legal questions. Despite almost twenty years of transacting forest carbon, and more than 67.8 million tons of carbon dioxide transacted, transaction costs and legal fees remain significant and unpredictable due to the range of project types and complexity of forest carbon projects. This document seeks to lower transaction costs and level the playing field by explaining and discussing the clauses of an emission reductions purchase agreement (ERPA), which is a typical contract used to buy and sell credits for carbon emission reductions. Specifically, the goal of this document is to provide contracting parties with important background information, as well as a basic familiarity with contractual language and format.This document therefore describes a forest carbon emission reductions purchase agreement step-by-step, discussing elements of the contract and issues that will arise. Sample contract clauses are presented to illustrate the discussion and provide examples of relevant contractual language.