Carbon Contracts Cornerstones - Drafting Contracts for the Sale of Project-Based Emissions Reductions

Abstract

The Kyoto Protocol is not yet in force, the exact nature of domestic legal regimes governing reductions in emissions of Greenhouse Gases is (in most countries) still not known, there is no regulated scheme for transactions involving project based emission reductions and the market for such emission reductions is not yet liquid. As such, the proper drafting of contracts for the transfer of ERs from one party to another party is vitally important. This discussion paper has been produced by IETA Member Baker & McKenzie as a common starting point for the preparation of Carbon Contracts in the carbon trading market. The objective is to begin the process of standardizing the Carbon Contract process to help facilitate trades and emissions projects by streamlining the contractual process so helping to reduce transaction cost. It is envisaged that this Paper will mark the beginnings of a process to develop standardized carbon contracts for different types of transactions. This process will it is hoped develop and mature alongside the carbon market.

Keywords: Emissions trading, Contracts, Project Mechanisms, emission reduction, kyoto protocol

JEL Classification: K0, L1, Q2