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

prior, and informed consent by all participants;provision for a fair allocation of revenues; andan orderly division of responsibility amongparticipants.Project governance procedures should alsoprovide for how, if at all, new participatinglandholders may join the project after itcommences. Care should be taken to disallowparticipation by people who have gained rightsin land illegitimately, by coercion, or by force. Itwill also be important to adjust benefit-sharingappropriately if different landholders participatein project activities for different periods of time.DeliveryIn any purchase agreement, the seller isobligated to deliver purchased goods or servicesto the buyer. Since forest carbon sequestrationoccurs over long periods of time, delivery ofVERs will often occur over a 15-30 year periodfrom the start of project activities.The sample agreement illustrates one commondelivery arrangement for a forward carbonpurchase, that is regular deliveries of all or aportion of the VERs generated by the project forthe duration of the agreement. This approachrecognizes fundamental uncertainties in thetiming and amount of VERs that will begenerated by a forest carbon project.Delivery of VERs generally occurs over anelectronic registry that tracks transfers of VERand helps to ensure that no double-counting ofemission reductions occurs. Responsibility foropening and maintaining a registry account, andpaying transfer or other fees, should be allocatedin the agreement.Box 3. Sample Delivery ClauseArticle 2. Delivery of Verified EmissionReductions.2.1 Delivery and Acceptance. On June 1, 2012and each June 1 thereafter (the “DeliveryDate”) through June 1, 2026 (the “AgreementTerm”), the Seller Representative shall deliver,and the Buyer shall accept, all of the VERsissued to the Project during the preceding yearfrom June 1 to May 31, inclusive (each suchdelivery and acceptance, a “Transaction”).2.2 Registry. The Seller Representative shalldeliver VERs on the Markit VCS Registry orsuch other registry as is agreed in writingbetween the parties (the “Registry”).2.3 Costs. Each party shall pay its own costs ofopening and maintaining a registry account.The Buyer shall pay all transfer and other feesassessed by the Registry.2.4 No Encumbrance. The Seller Representativeshall not create or permit to exist any claim orencumbrance over the Emission Reductions orthe VER that are the subject of this agreement.Price and PaymentThe buyer’s primary obligation is to makepayments in return for VERs from projectactivities. In turn, the seller must transfer alllegal rights in the VERs to the buyer. Thistransfer of rights is meant to ensure that theseller cannot re-sell the same VER to a differentbuyer. It also provides security for the seller,because rights in the VER are only transferredonce full payment occurs (see Box 4, clause 3.8).One of the most difficult aspects of forestcarbon transactions involves the question of upfrontpayments. An emission reductionspurchase agreement, like the sample agreement,anticipates that most of the payment is dueupon delivery of VER. However, many forestcarbon sellers, and small-scale sellers inparticular, need payment up front – in the formContracting for Forest Carbon | 6