A few words about

EMISSIONS REDUCTION PURCHASE AGREEMENTS

The lodestar of the Kyoto Protocol is the reduction of emissions of “greenhouse gases” in stages through the imposition of gradually stricter caps on developed countries’ production of certain pollutants that contribute to global warming. At present, all major developed nations except the US have agreed to binding restrictions on greenhouse gas emissions (GGE) pursuant to the Protocol.

To encourage reductions in emissions beyond required levels, the Protocol allows producers to sell excess GGE reductions to those who have not met the requirements, and establishes a market to regulate such sales. US firms are allowed to trade in carbon credits and finance the production of credits, even though the US is not yet a participant under the Protocol.

Executing a carbon trade requires careful analysis and documentation by an experienced attorney to ensure that the anticipated benefit will be realized. Purchase and sales contracts must be tailored to the many variables in each transaction and must also be consistent with applicable laws, which are changing rapidly. Particular care must be taken to address pricing and delivery issues with regard to the credits, which are intangible rights not yet defined under law as commodities, accounts, or personal property.

Such a contract usually involves not just the sale and purchase of emission credits but also the financing or development of the project that will create those credits. This creates an additional layer of complication wherein the responsibilities of each party must be carefully allocated by the terms of the agreement, and the registration, verification, licensing, and reporting requirements of the Protocol and the host country must also be addressed. Because of these factors, the participation of an attorney experienced in carbon trades is essential.