The emissions reduction contract between the buyer and seller of emission credits is an important document for developers of climate change projects. It identifies responsibilities, rights and obligations for project risk management. It also defines the commercial conditions of the project, including the price, volume and delivery plan for emission reductions. The Kyoto Protocol, signed in 1997 in Kyoto, Japan, by 192 industrialized countries, comes closest to a global agreement that works to combat climate change. Countries that ratify the Kyoto Protocol are given a CAP on CO2 emissions. If more than the assigned limit is issued, the injuring country is subject to a penalty in the form of a lower emission limit for the following period. However, if a country wishes to emit more greenhouse gases than its allowable limit (without penalty), it can participate in the emissions trading scheme with an ERPA. An ERPA usually involves two countries. However, it can also occur between a country and a large company. Often, the seller has implemented new technologies or developed a new project that he expects him to reduce his greenhouse gas emissions, so that the seller does not need as many emission credits and can benefit from them by selling.
LES are often ratified between buyers and intermediaries representing community groups. In these cases, if the ERPA is a binding contract between the buyer and the intermediary, the agreement between the seller and the community members is often less clear. It is therefore important to ensure that each agreement between the project participants and the mediator is interpreted differently and well by all parties. In a kind of compromise, a buyer of emission credits pays in cash the right to emit more than the level of CO2 assigned by the Kyoto Protocol and the seller receives cash for the obligation to produce less CO2. To be able to set up this agreement, both parties must sign an ERPA document. An Emissions Reduction Agreement (ERPA) is a legal-grade contract between companies that buy and sell emission credits. An emission credit is an authorisation or certificate allowing the holder to emit carbon dioxide (CO2) or other greenhouse gases (GHGs) into the atmosphere. . . .