Contracting for Forest Carbon : Elements of a Model ... - Forest Trends

individual or entity – a sellers’ representative –who will be authorized to negotiate with buyersand any third parties involved in the project onbehalf of the sellers as a group. Differentjurisdictions are likely to have distinct legalrequirements for authorizing a third party to acton behalf of sellers. Accordingly, sellers will haveto consult local counsel to ensure compliancewith the law.Potential buyers will verify the capacity andauthority of the sellers’ representative as part ofthe due diligence process, in order to avoidpotential disputes over authorization that candisrupt project activities. Buyers may also needassurances that they are dealing with a valid,authorized entity so as not to violate antimoney-laundering laws in their home country.The sellers’ representative may also be entrustedwith leading project development and design, aswell as project governance once the project is upand running. The sample agreement assumesthat the project is already underway. Therefore,it deals with project governance but not projectdevelopment.Good, transparent project governance, withrobust procedures in place to resolve disputesand facilitate participatory collective decisionmaking,can be expected to reduce the cost tosellers of administering the project and tocontribute to the project’s success. Projectgovernance provisions should be agreed on byall sellers in advance, and entrusted to a singleindividual or entity to ensure that they arecarried out as agreed.In addition, the sellers’ representative may beauthorized to collect revenues from buyers anddisburse funds to sellers according to agreedprocedures. Alternatively, this role may begranted to a separate entity – a trust fund, forexample – that will be in charge of fundsmanagement.Procedures for seller representation, projectgovernance, and funds management must beagreed in advance between all sellers, the sellers’representative and any other participatingentities, and outlined in one or more writtenagreements. For the sake of simplicity, thesample purchase agreement described in thisdocument assumes that the sellers’ representativeis properly authorized in a single agreement withall sellers to both negotiate on behalf of thesellers (“Participating Landholders” in thesample agreement), as well as to oversee projectgovernance and manage project funds.On the buyer side, the sample purchaseagreement considers a single buyer. It isrecommended that sellers execute a separatepurchase agreement with each buyer.In some cases, the government may participatein forest carbon projects as a buyer or a seller.Such government involvement will raise uniqueissues that are not addressed in this documentbut will be essential to address in thedevelopment of successful agreements.The Body of the Agreement:Rights and ResponsibilitiesThe ProjectForest carbon sellers can generate net emissionreductions by: (1) reducing forest emissionsfrom deforestation and degradation and (2)increasing the amount of carbon stored inforests via reforestation, restoration, orimproved forest management.Emission reductions, however, do not becomereadily marketable commodities until they arevalidated and verified to an external standardand become verified emission reductions (VER).In theory, any VER that is verified to a certainstandard is equivalent to any other VER verifiedto that standard, regardless of how it wascreated. This approach provides the basis fortrading VER on carbon markets. In practicehowever, VERs will sell for different pricesContracting for Forest Carbon | 4