The emission reduction purchase agreement between the buyer and seller of carbon credits is an important document for developers of climate protection projects. It identifies the responsibilities, rights and obligations for the risk management of the project. It also defines the commercial conditions of the project, including price, volume and delivery schedule for emission reductions. The Kyoto Protocol, signed in 1997 in Kyoto, Japan, by 192 industrialized countries, comes closest to a functioning global agreement to combat climate change. Countries that ratify the Kyoto Protocol will be given a maximum limit on CO2 emissions. Issuance above the assigned limit will result in a penalty for the injured country in the form of a lower emission limit for the following period. However, if a country wants to emit more greenhouse gases than its allowable limit (without penalty), it can participate in emissions trading with an ERPA. ERPAs are often ratified between buyers and intermediaries representing community groups. In these cases, while erpa is a binding contract between the buyer and the intermediary, the agreement between the seller and community members is often less clear. Therefore, it is important to ensure that any agreement reached between each project participant and the intermediary is different and well understood by all parties.
In a kind of compromise, a buyer of carbon credits pays in cash for the right to emit more than the level of CO2 allocated in the Kyoto Protocol, and the seller receives money for the obligation to produce less CO2. To enter into this agreement, both parties must sign an ERPA document. An ERPA usually involves two countries. However, this can also happen between a country and a large company. Often, the seller has implemented a new technology or developed a new project that they believe will reduce their greenhouse gas emissions, so the seller doesn`t need as many carbon credits and can benefit from them by selling. Buying and selling carbon credits is relatively easy and can be compared to buying and selling shares on the stock exchange. Since the transaction is paper-based, no physical assets usually change hands. and if you have access to the right amount of money and the right person to influence trading, then these transactions are relatively simple. There are many types of ERPA documents, each with a different impact on a project and its participants. Regardless of their individual specifications, each ERPA should cover the following key areas: An Emission Reduction Purchase Agreement (ERPA) is a legal contract between companies that buy and sell carbon credits. An emission credit is a permit or allowance that allows the holder to emit carbon dioxide (CO2) or other greenhouse gases (GHGs) into the atmosphere.
For new entrants to the industry, it is often difficult to find the right company through which they can buy or sell carbon credits and then determine their price. It is also important to be aware of the types of loans available in the market and how they compare to each other. The standards for ERPAs are set by the International Emissions Trading Association (IETA), a non-profit organization founded in 1999 to serve companies that trade carbon credits. .
