An Emission Reduction Purchase Agreement is a binding contract for the sale and delivery of carbon credits from a project developer to a buyer, where each credit represents one metric ton of carbon dioxide equivalent that was prevented from entering or removed from the atmosphere. It works like a commodity purchase contract, but the commodity is an environmental asset that does not exist until an independent auditor confirms it does. That single feature — a product created by verification rather than manufacture — is why an ERPA carries provisions you would not find in an ordinary sales agreement.
ERPAs support both compliance carbon markets, where governments mandate emission caps, and voluntary markets, where companies buy credits to meet sustainability pledges. The buyer might be a multinational corporation with a net-zero commitment, a national government building inventory under an international treaty, or an airline meeting obligations under the Carbon Offsetting and Reduction Scheme for International Aviation.1ICAO. CORSIA Eligible Emissions Units The seller is the project developer generating the credits.
What the Credits Are
The type of credit shapes nearly every other term in the contract. Credits fall into two broad categories based on how they affect atmospheric carbon.
Avoidance credits represent emissions that would have occurred but did not because of the funded project. A wind farm that displaces coal-generated power produces avoidance credits. The baseline is a modeled counterfactual, which is inherently uncertain, and avoidance credits face growing methodological scrutiny for that reason.
Removal credits represent carbon dioxide physically extracted from the atmosphere through reforestation, direct air capture, or similar approaches. Engineered removals offer very high durability, often storing carbon for centuries. Nature-based removals like forestry carry reversal risk, because a wildfire can release the stored carbon in hours. Removal credits generally command higher prices.
ERPAs also differ by regulatory framework. Certified Emission Reductions were issued under the Kyoto Protocol’s Clean Development Mechanism and recognized in compliance markets.2United Nations Framework Convention on Climate Change. The Clean Development Mechanism Credits generated under Paris Agreement Article 6.4 flow through a UN supervisory body.3United Nations Framework Convention on Climate Change. Article 6 of the Paris Agreement Voluntary market credits are issued by independent registries such as Verra’s Verified Carbon Standard and the Gold Standard.4Verra. Verified Carbon Standard Voluntary credits typically cannot be used for compliance obligations unless a specific regulatory program accepts them. The ERPA needs to specify which standard governs, which registry will hold the credits, and whether the credits are eligible for the buyer’s intended use. That last detail has tripped up more than a few transactions.
Core Provisions of the Contract
Project, Parties, and Additionality
The agreement identifies the two parties and the specific project generating the credits: a methane capture facility at a landfill, a reforestation effort, a direct air capture plant. It defines the geographic boundaries and operational lifespan of that project.
Every ERPA must address additionality, the requirement that the emission reductions would not have happened without revenue from credit sales. The contract incorporates a baseline methodology modeling what emissions would look like without the project, and it specifies the crediting standard whose rules govern that baseline calculation. The difference between projected baseline emissions and actual measured emissions determines how many credits the project can generate. This framework is where disputes most often arise, and experienced buyers negotiate hard over which methodology applies.
Delivery, Quantity, and Pricing
The delivery schedule specifies how many tons of credits the seller must transfer and when. Forward-delivery ERPAs, where the buyer commits to purchase credits from a project still under development, are common and carry higher risk than spot transactions. Pricing can take several forms: a fixed price per ton locked in at signing, a floating rate tied to a market index, or a hybrid that sets a floor and cap. Forward agreements with fixed pricing shift market risk to the buyer if carbon prices rise and to the seller if they fall, so the pricing structure reveals each party’s appetite for risk.
Buyers frequently restrict the vintage year of acceptable credits — the year the emission reduction actually occurred. Older vintages may not satisfy a buyer’s sustainability reporting standards or the requirements of compliance programs like CORSIA. The contract may also cap total volume or set minimum annual delivery quantities, with shortfall provisions if the project underperforms.
Representations, Warranties, and Title
The seller represents and warrants legal ownership of the credits, that the project complies with the applicable crediting standard’s rules, and that the credits have not been sold to anyone else or registered under a different carbon standard. This clean-title warranty is the buyer’s primary protection against double-counting fraud. The seller also typically warrants that the project has received all necessary government approvals and environmental permits.
Conditions Precedent
Payment obligations rarely activate on signing alone. Conditions precedent require that certain milestones be met first: the project must be validated by an accredited third-party auditor, credits must be formally issued by the registry, and those credits must be deposited into the buyer’s registry account. Only then does the buyer’s payment obligation kick in. This protects the buyer from paying for credits that may never materialize.
Risk Allocation Unique to Carbon
Carbon projects can fail in ways ordinary commodity contracts never face. A reforestation project can burn down. A regulatory change can strip a project of its eligibility. A host country can refuse to make the corresponding adjustment needed for a cross-border transfer under Article 6.2. The ERPA must allocate these risks.
Events of default cover the standard contract breaches: failure to deliver credits on schedule, failure to pay, insolvency, or material misrepresentation. The non-breaching party can typically terminate and claim damages. Force majeure provisions address events beyond either party’s control, such as natural disasters, war, pandemics, or government action making performance impossible. If a wildfire destroys a forest project, force majeure may suspend the seller’s delivery obligations without triggering default, though the buyer usually retains the right to terminate if the suspension lasts beyond a defined period.
For nature-based projects, reversal risk gets special treatment. Major registries require projects to contribute a percentage of their issued credits to a buffer pool, a shared reserve that can be drawn on if a project suffers a loss event. Verra’s VCS program uses a non-permanence risk assessment tool to determine each project’s required contribution based on factors like financial stability, management practices, and natural disturbance exposure.5Verra. Digitized AFOLU Non-Permanence Risk Tool The ERPA should specify whether seller or buyer bears the cost of buffer pool contributions and what happens if a reversal event depletes the project’s allocation. Negotiations here get genuinely contentious, because a seller’s projected revenue drops by whatever percentage the buffer pool absorbs.
Verification and Registry Mechanics
Before credits can be issued and delivered, the underlying project must clear technical documentation and independent review. The process starts with a Project Design Document laying out the carbon-reduction technology, baseline methodology, monitoring plan, and expected volume of reductions over the crediting period. The document is submitted to an independent auditor — a Designated Operational Entity under the CDM, or a Validation/Verification Body under most voluntary standards — which assesses whether the project’s design meets the applicable crediting standard’s requirements.6UNFCCC. Designated Operational Entities This is validation.
Once the project is operational, it generates monitoring reports containing actual measured data. An independent auditor then performs verification, confirming that reported reductions actually occurred and were properly quantified. The registry will not issue credits without both reports. Each issued credit receives a unique serial number that persists through every transfer and retirement, creating an auditable chain of custody.7Climate Action Reserve. Serial Number Guide
Both parties need active accounts on the relevant registry — Verra’s VCS registry, the Gold Standard registry, the International Carbon Registry, the Climate Action Reserve, or a compliance registry — before credits can be transferred. Opening an account requires identity verification and anti-money-laundering screening. The ICR’s KYC/KYB policy requires organizations to provide their full legal name, registered address, company registration number, country of incorporation, directors, and ultimate beneficial owners holding 25% or more ownership or control. Individual authorized representatives must submit government-issued identification, and the registry screens all parties against UN, EU, UK, and U.S. OFAC sanctions lists.8International Carbon Registry. ICR KYC/KYB Policy Registry fees vary by platform and add up. Verra charges a $750 account opening fee, a $1,500 pipeline listing request fee per project, a $3,750 registration review request fee, and an ongoing issuance levy of $0.23 per emission reduction claimed.9Verra. Verra Releases Updated Fee Schedule The Gold Standard charges $1,000 per year for registry account maintenance. The ERPA should specify which party bears these costs.
Standard Templates Parties Start From
Most ERPAs do not start from a blank page. The International Emissions Trading Association publishes template ERPAs tailored to both compliance and voluntary credit transactions, with pre-drafted provisions for delivery, default, force majeure, and buffer pool contributions. Parties customize from there.
The International Swaps and Derivatives Association published its 2022 Verified Carbon Credit Transactions Definitions, a standardized contractual framework for physically settled spot, forward, and option transactions in carbon credits across any carbon standard or registry.10International Swaps and Derivatives Association. 2022 ISDA Verified Carbon Credit Transactions Definitions (Version 3) The definitions cover delivery mechanics — transferring credits from the seller’s registry account to the buyer’s account — and retirement on behalf of the buyer.11International Swaps and Derivatives Association. A Strong Legal Framework for Carbon Trading CORSIA-eligible credits are covered. Standardized terms reduce negotiation costs and legal ambiguity when parties sit in different jurisdictions.
Regulatory and Tax Overlays That Shape Drafting
CFTC Oversight
The Commodity Futures Trading Commission exercises oversight over carbon credit derivatives traded on regulated exchanges. In September 2024, the CFTC finalized guidance for designated contract markets listing futures contracts based on voluntary carbon credits, setting quality expectations for credits eligible for delivery. The guidance pointed to the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles, which require additionality, permanence, robust quantification, no double counting, third-party verification, and transparent governance.12Integrity Council for the Voluntary Carbon Market. Core Carbon Principles The CFTC’s authority is limited to exchange-traded derivatives rather than the bilateral ERPA market directly, but its standards influence market norms and often get incorporated into ERPA representations.
FTC Green Guides
Companies purchasing credits to market themselves as carbon neutral or net zero face scrutiny under the Federal Trade Commission’s Green Guides. The FTC requires that offset claims be backed by competent and reliable scientific evidence, that accounting methods prevent the same offset from being sold more than once, and that marketers disclose whether the credited reduction will not occur for at least two years after purchase. Advertising an offset based on activity already required by law is considered deceptive.13Federal Trade Commission. Environmental Claims: Summary of the Green Guides ERPAs meant to support marketing claims should include delivery timing and additionality provisions tight enough to satisfy these disclosures.
Section 45Q Tax Credits
For ERPAs involving carbon capture and storage, Section 45Q of the Internal Revenue Code provides a per-ton tax credit to the entity that captures qualified carbon oxide. As amended by the Inflation Reduction Act, base credit rates are $17 per metric ton for carbon disposed of in secure geological storage, $12 per metric ton for carbon used in enhanced oil recovery or other utilization, and $36 per metric ton for direct air capture.14Internal Revenue Service. Credit for Carbon Oxide Sequestration Facilities meeting prevailing wage and registered apprenticeship requirements receive a fivefold bonus, bringing the rates to $85, $60, and $180 per metric ton, respectively.15Office of the Law Revision Counsel. 26 USC 45Q – Credit for Carbon Oxide Sequestration The ERPA needs to address which party claims the 45Q credit and how the credit value affects pricing of the carbon credits themselves, since the same captured ton can potentially generate both a tax credit for the capturer and a tradeable carbon credit.
Accounting Treatment
No finalized U.S. GAAP standard specifically addresses how companies record carbon credits on their balance sheets. The Financial Accounting Standards Board has an active project on the topic and issued a proposed Accounting Standards Update, “Environmental Credits and Environmental Credit Obligations (Topic 818),” in December 2024. The Board completed redeliberations in August 2025 and directed staff to draft a final standard for vote.16Financial Accounting Standards Board. Accounting for Environmental Credit Programs Until Topic 818 is finalized, companies account for purchased credits by analogy — some as intangible assets, others as inventory, others as immediate expense. The ERPA will not resolve this ambiguity, but buyers should coordinate with their auditors before signing, particularly for large forward-purchase agreements where the balance sheet impact arrives years before the credits do.
How the Deal Closes
Execution typically begins with a term sheet outlining project identity, credit type, volume, price, and delivery timeline. Once both sides agree on commercial terms, the full ERPA is drafted, often starting from an IETA or ISDA template, and negotiated. Signing increasingly happens through secure digital platforms to accommodate parties across time zones.
After execution, the seller works through the registry process. The project is validated, credits are issued based on verified monitoring data, and those credits are transferred from the project’s holding account into the buyer’s designated registry sub-account.17International Carbon Registry. ICR Process Requirements v6.0 The registry issues a confirmation notice documenting the transfer, which serves as proof of delivery. Payment triggers according to the conditions precedent in the contract, usually on confirmed delivery to the buyer’s account.
If the buyer purchased credits for offsetting rather than resale, the final step is retirement. The account holder initiates retirement through the registry, permanently removing those credits from circulation so they cannot be transferred or sold again. Retirement is recorded publicly, creating a transparent record the buyer can point to when reporting its offset claims. The transaction closes once funds clear and both parties receive a final statement of account.