Why template agreements will increase confidence in carbon unit sales

In a bid to support the voluntary carbon market and aid the UK’s journey to net zero, new free-to-access template agreements and guidance aims to streamline the carbon unit sales process.

Over the past five years, interest in buying and selling carbon units has significantly grown as landowners and investors have realised the critical role they can play in the UK’s net zero ambitions.

April marked the completion of an 18-month project aimed at developing and issuing template agreements for the sale of carbon units from UK woodland carbon and peatland restoration schemes.

The Woodland Carbon Code and Peatland Carbon Code that underpin such schemes have been in place for 14 years and 10 years, respectively. The codes set out the requirements for developing projects that tackle climate change by removing carbon dioxide from the atmosphere or stop it from entering in the first place. Projects that meet the requirements generate carbon units, a product that landowners can sell and companies can buy to compensate for their unavoidable greenhouse gas emissions.

A project with purpose

The project aimed to help buyers, sellers and their legal advisers to better understand the responsibilities, obligations and liabilities they should consider when buying or selling units. The new templates and the accompanying guidance are designed to provide greater clarity, making it easier for participants to engage in the market.

The project has been a collaborative effort involving Scottish Forestry in partnership with the IUCN UK Peatland Programme and law firms Brodies LLP, Gillespie Macandrew and Turcan Connell. It was supported by NatureScot in collaboration with the Scottish Government and in partnership with the National Lottery Heritage Fund, through the Facility for Investment Ready Nature in Scotland (FIRNS).

The initial stage of the project involved extensive consultation with stakeholders, including landowner representative bodies, insurance brokers, investor platforms and businesses who are involved in the design and delivery of carbon schemes.

The project team has produced two core agreement templates. The first addresses the sale of pending issuance units, which involves the seller of the units – typically a landowner but it can also be a tenant or joint venture vehicle – transferring the benefit of future carbon sequestration/emission reduction related to those units. The second is of the nature of an offtake agreement, where parties contract to transfer verified carbon units after the carbon sequestration/emission reductions have been evidenced.

Tailored approach

Variations of the core templates have been produced for use in each of the UK’s jurisdictions – Scotland, England and Wales, and Northern Ireland – reflecting differences in property law. The templates themselves are pro-forma documents, requiring only the completion of a commercial term sheet that will contain commercial and scheme-specific information and allow parties to record decisions on issues such as project risk, timing of payments and protection of investment.

The templates also enable contracting parties to tailor their agreement to individual preferences, through the provision for bespoke clauses. Detailed guidance has also been prepared to assist participants in identifying the pertinent issues and inform completion of the commercial term sheet.

The template agreements and guidance are now available on the Woodland Carbon Code website and are free to download.

It is hoped that these materials will support the voluntary carbon market by providing greater confidence to buyers, sellers and legal advisers, helping them to play their part in the country’s journey to net zero.

Written by Graeme Leith, a partner and forestry expert at Brodies LLP, and lead legal adviser on the FIRNS-funded contract project