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

Introduction
Forest carbon has the potential to play an
important role in climate mitigation. Scientists
assert that deforestation and degradation
account for 15% to 20% of CO2 emissions. 1
Other reports, including The Stern Review, The
Eliasch Review, and research by McKinsey and
Company, support the halting of deforestation
as a critical and cost-effective means of reducing
global greenhouse gas (GHG) emissions. 2
Forest carbon payments – payments for
restoring or planting forest, or for preventing
forest degradation or deforestation – can help to
prevent and reverse forest loss. However, forest
carbon transactions today raise many
challenging issues for participants, including
difficult legal questions. Despite almost twenty
years of transacting forest carbon, and more
than 67.8 million tons of carbon dioxide
3 transacted, transaction costs and legal fees
remain significant and unpredictable.
In addition, the nature of forest carbon markets
is such that buyers and sellers are likely to be on
unequal footing in terms of their financial
resources and commercial experience. Forest
carbon sellers tend to be landowners and may
have little experience with commercial
transactions, whereas forest carbon buyers are
generally economically sophisticated companies
and carbon brokers.
1 Solomon, S. et al. 2007; van der Werf, G. et al.
2009; Rogner, H. & Dadi Zhou et al. 2007.
2 Stern, N. 2006; Eliasch, J. 2008; Enkvist, P. et al.
2007.
3 Hamilton, K. et al. 2010.
Box 1. Types of Forest Carbon Projects
Different activities can form the basis of a forest
carbon project, including:
• Afforestation – planting and raising trees in
areas that were not forested in recent
history.
• Reforestation – planting and raising forest
in areas that were forested in recent history.
• Improved forest management (IFM) –
engaging in land management activities that
enhance carbon stocks in forest.
• Reducing emissions from deforestation
and degradation (REDD) – protecting
existing forests from degradation or
deforestation that would otherwise occur,
thereby avoiding carbon emissions.
• REDD+ or REDD++ – according to the
United Nations REDD Program, “REDD+
goes beyond deforestation and forest
degradation and includes the role of
conservation, sustainable management of
forests, and enhancement of forest carbon
stocks.” 4 REDD++ refers to a broader suite
of land-use activities, including things like
agriculture, and land management.
In order to lower legal costs of forest carbon
transactions and help to level the playing field
between buyers and sellers, this document
guides the reader through a sample forest carbon
emission reductions purchase agreement
(ERPA). The discussion outlines issues that arise
during pre-negotiation, negotiation, and
contracting, while sample contract clauses
illustrate the discussion and provide examples of
relevant contractual language.
4 UN-REDD Programme 2010.
Contracting for Forest Carbon | 1