As corporate buyers approach carbon markets with increasing sophistication, the complexity of contracting can become a bottleneck. Our recent Carbon Connect webinar featured a discussion from legal experts in the field, who address the contractual nuances and challenges shaping the industry's evolution.
Moderator: Magnus Drewelies, CEO and Co-Founder of CEEZER
Panelists:
Johannes Ruppel, VP, Legal and General Counsel at CEEZER
Peter Mayer, Partner at Stairs Dillenbeck Finley Mayer PLLC
Market Momentum Drives Contracting Complexity
The numbers tell a compelling story of market maturation. Nature-based offtake agreements tripled between 2023 and 2024, growing from approximately 7Mt to over 20Mt, while CDR forward purchases now represent 60% of all spot volume values. This growth is being driven by four key factors: regulatory developments creating new frameworks, demonstrated market resilience despite reputational concerns, increased professionalism in contract structuring, and a shift toward more dynamic procurement patterns.
As buyers contract larger volumes from multiple project developers, the stakes have risen significantly. Long-term offtake agreements with multiple delivery and payment milestones are becoming increasingly popular, requiring more sophisticated contractual arrangements as net-zero deadlines approach.
The Legal Landscape: Unique Challenges Require Specialized Solutions
Peter Mayer, Partner at Stairs Dillenbeck Finley Mayer PLLC, emphasized that carbon credits represent a unique asset class requiring specialized treatment. "Carbon credits are intangible property — a bundle of contract rights that can't be treated like traditional commodities," Mayer explained. This fundamental difference has practical consequences for everything from title transfer to collateralization.
The cross-border nature of most carbon transactions adds another layer of complexity. With emerging frameworks like UNIDROIT working to create universal standards, companies must navigate varying jurisdictional requirements while maintaining enforceability across different legal systems.
Practical Guidance for Corporate Buyers
Johannes Ruppel, VP Legal and General Counsel at CEEZER, provided practical insights for procurement and legal teams entering the carbon market. His key recommendation: involve legal counsel early and avoid adapting general purchasing terms that weren't designed for carbon credits.
Ruppel advocates for short-form, carbon-credit-specific contracts that focus on essential elements: concrete credit definitions based on registry ID and vintage, clear delivery dates with appropriate flexibility for registry delays, and tailored warranties that address the unique nature of carbon assets.
Balancing Risk and Opportunity in Forward Agreements
The webinar highlighted the growing importance of forward contracting in carbon markets. While forward agreements offer price advantages and supply security, they require careful consideration of delivery risks and market fluctuations.
Both experts emphasized the importance of fixed prices for supplier financial planning and fixed delivery dates for buyer compliance needs. However, they also stressed the need for realistic expectations about delivery timelines, given the complexity of carbon project development and the rigorous validation processes required by registries.
"It's better to buy a good portfolio with a bad contract than the other way around," Ruppel observed, emphasizing the importance of focusing on credit quality while maintaining reasonable contractual flexibility.
Resources and Next Steps
For legal teams new to carbon markets, the experts recommended starting with established frameworks rather than creating contracts from scratch. The IETA templates provide a solid foundation, while platform providers like CEEZER offer streamlined approaches that eliminate the need to negotiate individual supplier agreements.
The webinar underscored a critical message: as the voluntary carbon market matures, professional contracting expertise becomes essential for successful participation. Companies that invest in understanding these complexities early will be better positioned to build robust carbon portfolios while avoiding common pitfalls that can derail transactions.
Looking Forward
With regulatory frameworks evolving and market volumes continuing to grow, the importance of sophisticated contracting will only increase. The insights shared in this webinar provide a roadmap for navigating these complexities, helping corporate buyers approach carbon markets with the confidence and expertise needed to succeed in this dynamic landscape.
If you have any questions about contracting in the VCM, please reach out to our team we'd be happy to discuss with you.
