Community guidelines for accessing forestry voluntary carbon ... - FAO

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Chapter 6: Identifying, managing and quantifying risks eagerness can sometimes lead them to be less vigilant than they ought to be when signing these agreements. An ERPA is no guarantee against inequitable outcomes unless local communities receive the necessary advice and support when negotiating these agreements with investors. An example of an ERPA can be found on www.ieta.org/assets/ TradingDocs/cdmerpav.3.0final.doc. More detailed information on ERPAs and the relevant procedures can be accessed from the Katoomba Group at http://www.katoombagroup.org/ regions/international/legal_contracts_cdm.php. A prerequisite for an ERPA is that the right to benefit from the sale of carbon credits (or ‘carbon rights’ – see Box 7) has been defined. This simplifies the identification of the rightful seller. Other main characteristics and objectives of an ERPA are that it: • Identifies and clarifies the relationship between the buyer and the seller; • Is usually in English, often without translation into the native language of the project developer or investor; • Identifies the expected quantity of carbon credits and the unit price; • Usually includes delivery guarantees, enforcement clauses and penalties for breach of contract; and • Includes the contract validity and provision for cancellation. Usually, the agreement is made between two parties: a buyer and a seller of carbon credits, even though the purchase transaction may involve several sellers or whole communities and/or multiple buyers. In general, the risks to the rights of the various parties can be mitigated by the use of intermediaries (authorized representatives), who can negotiate on their behalf, have some legal background and authority, and can oversee 151
Community guidelines for accessing forestry voluntary carbon markets the disbursement of revenues on behalf of the sellers, with the prior written agreement and consent of all seller or buyer parties. Emission reductions can be sold without being validated and verified i.e. without having become the Verified Emission Reductions (VERs) which can be accepted for sale on the VCM. However, the failure to verify carbon credits usually affects the price so seriously that investors often retain all payment until they are verified and the required quality is delivered. In the case of unverified carbon credits, two models for sale are used: • Forward sales: bearing a relatively low price, but an obligation for the seller to perform project activities and ultimately to create verified credits. Project developers, particularly if they are small holders or local communities, may well prefer this sales method, despite the low price, as up-front funding is needed for the implementation of project activities. This is one of the main ways in which dishonest brokers can defraud them. • Spot sales: sales made as and when carbon credits are generated. The price is higher, mainly because there are less risks for the buyer at this stage. The credits may not yet have been verified, but there is sufficient objective evidence of their existence. In either case, sales agreements made without verification under VCS or another carbon standard, or without an ERPA, carry significant risks for local communities. Some clauses of an ERPA relate to general good practice e.g. project registration, monitoring, etc. However, the more obligations listed, the higher the chance of the contract being terminated. It is therefore important to avoid including unreasonable obligations for local communities, as well as to reduce opportunities for the investor to withdraw from the agreement or force changes to the project design. The main focus of a good ERPA should be for the investor and the project 152
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RAP PUBLICATION 2012/16 Community g
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Foreword The impacts of climate cha
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Table of Contents Foreword iii Acro
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List of Boxes Box 1: Grouped projec
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SFE SFM SOC SOP UNFCCC USAID VCM VC
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Afforestation, Reforestation & Re-v
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Climate Change Adaptation 5 Adjustm
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minimum threshold values at maturit
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(PD) is an official term under one
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obtaining and maintaining project r
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1 Forests and climate change 19
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Chapter 1: Forests and climate chan
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