Emission Reduction Purchase Agreement (ERPA)
A contract in which a buyer commits to purchase future emission reductions from a project at agreed terms.
An ERPA is the standard financing instrument for carbon projects. It converts expected future credits into present revenue, which is often what allows a project to be built at all.
Contract terms allocate risk. Price may be fixed, indexed or subject to a floor and sharing mechanism. Volume may be firm or a best-efforts range. Delivery risk, registry risk and policy risk each need an owner, and termination provisions determine what happens if the project underperforms or a host country changes its rules.
Because credits are created only after verification, an ERPA is effectively a forward contract on a future verification outcome. Buyers who treat it as a certainty rather than a conditional claim are the ones surprised by shortfalls.
Frequently asked questions
What happens if the project delivers fewer credits than agreed?
Remedies depend on the contract: make-up periods, price adjustment, reduction of committed volume or termination with penalties.
Can ERPAs be sold on?
Often yes, subject to assignment clauses, which is how secondary market liquidity develops.