Emission Reduction Purchase Agreements (ERPA)

·   What is an ER?

“Emission Reductions” or “ERs” means the GHG Reductions achieved by a Project and verified by an Independent Third Party or an Operational Entity as meeting a set of standards consistent with those contained in the regulatory framework of the UNFCCC and/or the Kyoto Protocol.” (Definition –CDCF)

·   What is an Emission Reduction Purchase Agreement (ERPA)?

Emission Reduction Purchase Agreement, aka Carbon Purchase Agreement, is the contract between the carbon buyer and seller to provide a documented framework within which ERs are bought, sold, acquired and transferred.

With an ERPA, the “rights arising from an emission reducing activity” are being bought or sold.

·   Legal Context

As a new and distinct area of law, the legal structure regulating ERPA’s deals with the monitoring and mitigation of climate change through economic mechanisms such as emission trading.

This new area of law is unique and cross jurisdictional in nature combining principles of public international law , commercial law, finance law, project law, tax law and corporate and securities law. 

·   A Good ERPA

A good ERPA shall bear the properties defined herein;  overcoming the disconnect between the international and national law and private and public legal regimes, binding parties, compliance with the domestic law requirements, allowance for enough flexibility and management of constantly developing international legal framework.

·   Main Elements and Purpose of Emission Reductions Purchase Agreements (ERPA)

Purpose of the ERPAs is composed of four elements as recording the agreement, identifying the responsibilities, establishing the rights and managing risks.

The parties of ERPAs are the buyer and the seller. Buyer purchases ERs from the Project Entity and makes the payment for achieving ERs. After this, the arrangement for initial and periodical verification, validation and certification (through a DOE) is realized. At the end, ERs are transferred.

Parties, definitions, articles related to sale and purchase, delivery, documents or other evidences showing validity of ERs being contracted, clauses regarding the baseline measurement, articles on risk management, price and terms of payment, warranties and representations, liability and indemnities, default, termination and remedies, progress reports and audit rights, confidentiality clause, arbitration and dispute resolution clause, taxes, levies and charges, clauses on force majeure, third parties and other “boiler plate clauses” shall be included within ERPAs.

ERPAs may be conducted as forward contracts, spot contracts, option contracts or hybrid contracts.

·   Future Legal Dynamics

License trading, taxation, corporate securities are some of the important matters of domestic law regarding emission reduction which will highly be discussed. Most likely, there will be frequent amendments in both Turkish energy and environmental laws until this new area of law is settled.

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