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

qualified to perform validation and verification,the time and expense involved is significant andunexpected delays are common. These and othercosts and risks of validation and verificationmust be allocated in the purchase agreement.When VERs have been validated and verified toa certain standard, they are “issued” by thestandards organization and entered into acarbon credit registry that tracks the issuanceand ownership of VERs.Who will bear the costs of validation,verification, issuance, and registration is likely tobe a major issue in a purchase agreement.Assumption of some of these costs by the buyerprovides a major incentive for sellers to use aforward purchase agreement – rather thanselling for a higher price on the spot market at alater time.To account for changing circumstances, thepurchase agreement should contain a process forchanging the chosen standard and methodologyin order to allow the parties to adapt. Forexample, new national law or internationaltreaty may require or prefer a different standardfor regulatory compliance purposes, making theinitial standard unattractive to buyers.A common provision allows the buyer to changethe standard if it pays for re-accreditation to thenew standard as well as any “downside” for theseller(s). The downside would include thingslike the cost of unsold emission reductions if thenew standard required that more emissionreductions be held aside as a buffer.Box 8. Sample Validation and VerificationClauseArticle 6.Validation and Verification.6.1 Standards. The parties shall ensure that theEmission Reductions are validated and verifiedaccording to the Voluntary Carbon Standard(the “Carbon Standard”), and that the climate,community, and biodiversity benefits of theProject are validated and verified according tothe Climate, Community, and BiodiversityStandards (the “Co-Benefits Standard”).6.2 Responsible Party. The Seller Representativeshall submit all required materials anddocumentation for VER validation, verification,registration, and issuance (collectively,“Accreditation”) under the Carbon Standardand the Co-Benefits Standard and shall act asthe primary contact for Accreditation.6.3 Standard Selection. The Buyer shall selectthe individuals or entities to conductaccreditation as required by the CarbonStandard and the Co-Benefits Standard. TheBuyer may change the designated CarbonStandard up to two times for any reason, but theBuyer shall pay for re-Accreditation and anyadditional costs or lost revenue that the SellerRepresentative experiences because of re-Accreditation.6.4 Costs. The Buyer shall pay all costs ofAccreditation.6.5 Standard Availability. If the CarbonStandard becomes unavailable through no faultof the parties, the parties shall select areplacement Carbon Standard by mutualagreement, with any costs of re-Accreditation tobe paid one half by the Seller Representative andone half by the Buyer. If the Co-BenefitsStandard becomes unavailable through no faultof the parties, the parties may select areplacement Co-Benefits Standard by mutualagreement or may proceed with Accreditationunder the Carbon Standard alone.Contracting for Forest Carbon | 12