Who this page is for. Project developers and sponsors negotiating offtake and financing. Not legal or tax advice. Transactions depend on rights, MRV quality, KYC and host country rules.
How to Negotiate ERPAs and Finance Your Carbon Project
Get your ERPA and financing right and your project survives scrutiny. Miss key clauses and you lose price, flexibility, and time. This page gives a practical sequence, the clauses that matter, model terms, and how to pull in prepayment or streaming without giving away the upside.
Use cases: first sales • scale up • refinance
Structures: ERPA • forward offtake • prepayment • streaming
Risk tools: delivery insurance • permanence cover • PRI
Labels: Article 6 and CORSIA where eligible
Outputs: ERPA term sheet • finance term sheet • CP list • security package • registry SOP
1) ERPA Building Blocks
- Parties and scope who sells, who buys, project IDs, registries, labels.
- Tenor and delivery schedule annual or quarterly volumes, grace and make up rules.
- Price fixed, floor with collar, or index formula with transparent inputs.
- Quality and eligibility standard, method, vintage, labels, buffer deductions.
- Title and risk of loss point of transfer in the registry and proof set.
- Remedies replacement, cash repayment, or credit for future deliveries.
- Covenants MRV performance, reporting, use of proceeds if prepaid, no double selling.
- Dispute forum governing law, arbitration venue, escalation steps.
2) Pricing Mechanics That Protect You
| Mechanic | How it works | When to use |
|---|---|---|
| Fixed price | Single number per vintage or band | Short tenor or near term issuance |
| Floor with collar | Buyer pays at least the floor and up to a cap | Volatile markets with shared upside |
| Index formula | Reference price plus premia for type and labels | Long tenor where transparency matters |
| Quality bands | Tiered price for ARR, REDD+, cookstoves, biochar | Mixed portfolios or pipeline shifts |
Always define who supplies the index, the timestamp, and the fallback if the source fails.
3) Volume, Flex, Make Good, and Replacement
- Committed volume base schedule with tolerance band.
- Flex rules allowed increase or decrease per year with notice periods.
- Make good shortfall carried forward within a set window.
- Replacement credits permitted types, same or better quality, price adjustment if different.
- Force majeure clear list, evidence, duty to mitigate, and maximum suspension time.
4) Title Transfer, Risk of Loss, and Registry Ops
- Transfer point title passes on delivery into buyer account or escrow sub account.
- Proof registry screenshots, serial lists, and transfer confirmation emails.
- No encumbrances warranties that credits are free of claims and not retired elsewhere.
- Serial control ledger with project ID, vintage, serial ranges, and status.
- Omnibus use escrow rules if a third party account is used.
5) Conditions Precedent and Security Package
- Core CPs rights verified, PDD filed, validation timetable, insurance quotes, KYC cleared.
- Security assignment of future issuances, charge over ERPA proceeds, account control where required.
- Escrow staged releases tied to milestones and audit deliverables.
- Step in rights buyer or lender can cure defaults and appoint operators if delivery is at risk.
6) Finance Options That Work With ERPAs
| Structure | Cash flow | What lenders look for |
|---|---|---|
| Offtake prepayment | Advance against contracted deliveries | Strong ERPA, clear CPs, insurance on delivery |
| Streaming | Funding now for a percent of future credits | Pipeline depth, governance, step in language |
| Receivables debt | Loan against near term deliveries | Creditworthy buyer, assignment of proceeds |
| Equity for build out | Capital for capex and scale | Clear use of funds, milestone plan, governance |
Align ERPA covenants with finance covenants to avoid conflicts on reporting, use of proceeds, and remedies.
7) Insurance and Enhancements
- Delivery insurance triggers include non delivery and delay beyond a buffer period.
- Permanence insurance covers reversal risk where buffers are not sufficient.
- Political risk transfer restrictions and expropriation where host risk is high.
- Performance bonds for critical milestones if a lender requests added comfort.
8) Article 6, CORSIA, and CCP Alignment
- Article 6 define authorization steps, documents, and the effect on price and delivery.
- Corresponding adjustment spell out timing, evidence, and remedies if not granted.
- CORSIA confirm program and vintage eligibility and who pays for labels.
- CCP alignment run a gap review and document changes that lift price and demand.
9) Negotiation Sequence and Timeline
| Stage | Weeks | Output |
|---|---|---|
| Indicative terms | 1 to 2 | Non binding term sheet with price mechanics and schedule |
| Diligence | 2 to 4 | Rights, MRV, policy, insurance quotes, finance options |
| CPs and documentation | 3 to 6 | ERPA, finance agreements, escrow, security documents |
| Funding or first delivery | Per contract | Tranches or scheduled deliveries with registry ops |
10) Model Clauses and Sample Terms
| Clause | Sample language or range | Purpose |
|---|---|---|
| Price floor | USD X per tCO2e with collar at USD Y | Protects downside and caps upside give |
| Indexation | Reference Index A at close of day T plus quality premium | Tracks market with transparent inputs |
| Make good | Shortfall carried twelve months then cash or replacement | Gives time to cure without default |
| Replacement | Same or better type and label, price adjusted by formula | Keeps delivery whole when project slips |
| Title transfer | On receipt into buyer registry account with serials listed | Clear proof of delivery and ownership |
| Step in | Buyer or lender may appoint operator after notice and cure | Protects delivery if performance fails |
| Article 6 | Authorization and CA as CP or price step up if absent | Aligns policy outcome with value |
11) Data Room Checklist for Counterparties
- Rights pack and boundary files.
- PDD draft and MRV SOPs with sampling calculator.
- Validation plan, VVB shortlist, site access permissions.
- Issuance forecast by vintage and risk factors.
- Registry account details and ops SOP.
- Insurance quotes and term sheets.
- Board approvals and governance chart.
12) Pitfalls to Avoid
- Agreeing to exclusivity without a minimum purchase or price floor.
- Vague replacement language that lets buyers take cheap substitutes.
- Silent on Article 6 which creates double counting risk and reprice later.
- Prepayment without escrow and CPs tied to audit deliverables.
- No serial control which breaks transfers and trust.
FAQs
Can I sign multiple ERPAs for the same project
Yes if volumes, vintages, and serials are clearly separated and the contracts allow it. Keep a master schedule to avoid overlaps.
What price structure is best for early projects
A floor with a collar protects the downside and still gives the buyer visibility. Add a quality premium for labels or removals.
How do lenders view ERPAs
They want enforceable contracts, clear CPs, strong buyers, and rights over proceeds and accounts. Insurance improves terms.
Want market terms, not buyer friendly boilerplate. We negotiate ERPAs and arrange prepayment or streaming with clean CPs and insurance.
Request a Proposal Book a ConsultationDisclaimers
- We advise and arrange. We are not your lawyer or tax advisor.
- Terms are illustrative and depend on diligence and documentation.
- Policy and program rules can change. Confirm before signing.
