akar.earthCarbon Offtake and ERPA Agreements
How carbon offtake agreements and ERPAs work: key clauses, pricing structures, delivery risk, Article 6 terms and what Indonesian developers should negotiate.
A carbon offtake agreement, often called an ERPA (Emission Reduction Purchase Agreement), is a contract in which a buyer commits to buy future carbon credits from a project on agreed terms for volume, price, timing, quality and remedies. For developers it secures revenue and often unlocks financing; for buyers it secures supply of credits that meet their criteria.
Long-term offtakes have become more common for nature-based removals. Buyer coalitions have run competitive requests for reforestation and agroforestry projects with multi-year delivery and minimum durability requirements; one coalition reported more than 20 million tonnes under contract by 2030 and a 40-year minimum storage criterion. For Indonesian projects, the main extra dimension is how domestic rules and Article 6 affect what can be delivered.
Key clauses and what to negotiate
| Clause | What it covers | Developer focus |
|---|---|---|
| Volume | Annual or total tonnes, minimums and caps | Base on conservative ex ante estimates, not best case |
| Delivery type | Firm, best-efforts or pro-rata share of issuance | Avoid firm delivery you cannot replace |
| Price | Fixed, indexed, floor and ceiling, or price per quality tier | Link price to rating or CCP label upside where possible |
| Quality conditions | Standard, methodology, CCP label, rating, co-benefit labels | Make sure conditions are objective and achievable |
| Payment timing | On delivery, prepayment, milestones | Match to project cash needs |
| Article 6 terms | Authorisation, corresponding adjustment, price difference | Allocate regulatory risk explicitly |
| Reversals | Buffer use, replacement obligations | Align with the standard’s buffer rules |
| Conditions precedent | Registration, permits, FPIC, domestic approvals | Realistic deadlines with extensions |
| Termination and remedies | Breach, change in law, force majeure | Include Indonesian regulatory change |
| Claims and publicity | How the buyer can describe its purchase | Avoid claims you cannot support |
Step-by-step: preparing for an offtake negotiation
- Build a defensible volume forecast. Use measured growth, realistic survival and the uncertainty deduction. See ex ante carbon estimation.
- Document land rights and consent. Buyers’ due diligence will start here.
- Map the regulatory route. Domestic registration in SRUK, any international standard, and whether authorisation is needed.
- Decide your delivery model. A pro-rata share of issued credits is safer for a young project.
- Model price scenarios. Consider rating outcomes, CCP labelling and authorisation status as separate drivers. See how nature-based credits are priced.
- Agree reporting. Buyers want monitoring updates between verifications; define what, when and how.
- Get legal advice under the governing law and on Indonesian requirements.
Article 6 and authorisation risk
If a buyer wants to use credits towards another country’s target, for CORSIA, or for other international mitigation purposes, the units need a host country letter of authorisation and a corresponding adjustment. In Indonesia, the authorisation process and conditions have changed over time and should be checked at signing. Contracts should state:
- who applies for authorisation and who pays,
- the price for authorised units versus non-authorised units,
- what happens if authorisation is delayed or refused,
- whether the buyer can terminate or convert the order to non-authorised units.
Indonesia specifics
Domestic rules decide which units can be traded on IDXCarbon and whether units can leave the country. Benefit-sharing obligations and community agreements must be reflected in the contract, since they affect what the developer can promise. Projects involving social forestry or customary forests also need the community’s informed agreement to the offtake terms, not just to the project.
Pricing structures in practice
Offtakes rarely use one flat price for the whole term. Common structures include:
- Fixed price for a set volume, simple but risky for both sides over long periods.
- Floor and ceiling, where the price follows an agreed reference within a band.
- Quality-tiered pricing, with higher prices if credits achieve a target rating band, a CCP label or co-benefit certification. Given BeZero’s finding that prices rise about 40% between rating bands, this can be a meaningful lever.
- Authorisation premium, a separate price for units that come with a letter of authorisation and corresponding adjustment.
- Prepayment discount, where part of the price is paid early in exchange for a lower overall price. See prepayment finance.
- Revenue share, where the buyer pays a base price plus a share of any resale margin.
Whichever structure you choose, write down how the price is calculated in each scenario so that both sides, and the communities sharing revenue, can check it.
Common mistakes
- Promising firm volumes from ex ante estimates.
- Accepting quality conditions defined by reference to future rules no one can predict.
- Ignoring the difference between authorised and non-authorised units in price.
- Forgetting that communities share revenue, which affects margins.
- Signing without a change-in-law clause covering Indonesian regulation.
See the climate finance hub for related topics, or talk to us about carbon strategy before you negotiate.
Frequently asked questions
What is an ERPA?
An Emission Reduction Purchase Agreement is a contract in which a buyer agrees to purchase carbon credits from a project, usually future credits, on defined terms for volume, price, delivery, quality and remedies.
What is the difference between an offtake agreement and an ERPA?
The terms are often used interchangeably. 'Offtake' stresses a long-term commitment to buy future output; 'ERPA' is the traditional name from compliance and World Bank programmes. Both set out how credits are delivered and paid for.
Who carries the risk if a project under-delivers?
It depends on the contract. Firm delivery puts the risk on the seller, who may need to replace credits or pay damages. Best-efforts or pro-rata delivery shares the risk with the buyer, usually at a lower price.
Should an offtake agreement mention Article 6?
If the buyer may want authorised units with a corresponding adjustment, yes. The contract should say who applies for authorisation, what happens if it is refused, and how price changes for authorised versus non-authorised units.