Ten Key Questions to Ask About Carbon Contracts
May 29, 2022 Carbon contracts are becoming increasingly popular, allowing growers to benefit from carbon sequestration practices that they may be currently using and/or adopting. Numerous companies and organizations are offering contracts. But how can you know exactly what you’re signing up for?
In a presentation to the recent Plains Cotton Growers annual meeting in Lubbock, Tiffany Dowell Lashmet, Associate Professor and Extension Agricultural Law Specialist with Texas A&M AgriLife Extension, offered suggestions on identifying benefits and deal breakers before signing carbon contracts.
“Every kind of contract is different” she says. “Not just different, but very different. Don’t rely on something you’ve seen in another contract or read in the newspaper or what your neighbor says is in his contract. Different companies have vastly different terms that you need to be aware of.”
“When you’re looking through a contact, watch for the deal breakers,” she points out. “You want to make sure you know what you’re signing, what your obligations are, and that everybody’s on the same page about what we’re doing.”
She offered ten questions to consider before signing:
Read the Contract…the Entire Contract. Don’t just look for the dollar amount and move on. Read the entire contract and understand what’s in it.
What Practices Are Required? Understand what you’re agreeing to do and not to do. Don’t agree up front to do something and not know what it is. Be clear on what’s required.
How Will Payment Be Structured? Is the payment based on adopting a practice or on a positive outcome based on increased carbon in the soil? Know what’s included in those measurements and understand the potential for carbon sequestration in your area.
What Is the Term of the Contract? Watch for extension clauses that allow companies to extend or terminate the contract at their option at the end of the contract term. Are there are continuing obligations beyond the term of the contract? Pay attention to the penalties if you terminate the contract early. Watch for vesting clauses.
How Will Verification Be Done? How, when, where, and how many sites will be sampled? Will you be notified ahead of time? Who’s going to conduct the testing, and who pays for it? Can you appeal the results of the measurement?
What Other Uses Can You Make on the Property? What else can be done or not be done on your property? Are things like hunting leases still valid or are changes needed? Are energy contracts (oil and/or gas, solar) allowed?
What Penalties Can Be Imposed? Know and understand what can trigger a penalty or liability for you.
How Broad Is the Stacking Prohibition? Stacking prohibitions prevent you from enrolling land in this contract into another carbon contract. Some may also prohibit collection on any government programs for the same land. Be aware and understand.
What Data Must Be Provided? You will retain ownership of your data, but the contract allows use rights. Are there limits to rightful entry onto your property or does the contract grant blanket entry rights? Is aerial observation and/or use of drones allowed?
How Are Amendments Handled? Can the company amend at any time? Can the contract be assigned to someone else? Are there attorney fee provisions? What state is designated for choice of law? Is there a venue clause? What are the terms for dispute resolution? Is there a class action waiver? Check the scope of waiver clauses.
GET THE NEWSLETTER TODAY!
