Here’s the contract Stripe, Shopify, Meta and Alphabet use for carbon removal

Frontier, a $1 billion initiative lining up buyers for early-stage carbon removal approaches, is sharing the contract it uses accompanied by tips about how to get deals done more quickly.

Frontier, founded by Alphabet, McKinsey, Meta, Shopify and Stripe in 2022, is a so-called advance market commitment (AMC) that has so far agreed to pay $317 million for future delivery of credits representing 571,776 metric tons of carbon dioxide removal. Those pledges give financiers confidence there are buyers lined up to buy the services of early-stage companies that have yet to scale their approaches for commercial availability.

The suggestions published Aug. 15 draw from best practices learned in negotiating deals to “off-take” carbon credits generated by seven companies ramping commercial operations between 2023 and 2028. 

“This template is very unlikely to be the final form of carbon removal off-take agreements, but our hope is that it may help other teams save valuable time by providing a decent starting point,” said Hannah Bebbington, head of deployment for Frontier, in a blog.

No standard template 

While the process for negotiating a renewable energy purchase agreement is fairly standard, that’s not the case for carbon removal, because the approaches are nascent, according to Bebbington. The “agreements themselves need to be designed to work for carbon removal at its current state, and thus manage more risks and unknowns than the existing contracts contemplate,” she said.

Carbon removal is seen as crucial for keeping global temperature increases below the 1.5 degrees Celsius increase required under the Paris Agreement. Some forecasts suggest corporations will need to fund at least 6 billion to 10 billion metric tons of removal to achieve their net-zero claims, but the market is far smaller today. Microsoft is by far the largest buyer of these credits today. It signed deals worth 5.5 million metric tons in fiscal year 2023, although it has signed at least one agreement this year that dwarfs that total. Under that pact, Microsoft will purchase 8 million credits for nature-based projects, such as reforestation, between now and 2043.

“True bankability actually depends on project financiers getting comfortable with the technology risk, the execution risk and the market rise associated with a project,” said Bebbington.

Frontier’s template (found here) offers examples for how to handle the following:

• Fixing prices and volumes, or the budget covered by the contract
• Writing a detailed project description so that buyer and seller expectations are aligned
• Setting specific delivery parameters for the carbon removal credits
• Estimating a timeline over which credits become available; there could be three years between a contract signing and delivery
• Outlining how credits will be measured and verified
• Defining termination rights if a project fails to go commercial by the deadline or under-delivers
• Creating “right of first offer” provisions and prices for scenarios in which the carbon removal company can actually deliver more credits than initially promised

Take these actions to get ahead

Three “lessons” Frontier’s team learned along the way:

• Dedicate at least one lawyer to the process from the start, and involve that person or team in the strategy, not just the deals. “It was important to have sustained support from people who weren’t just focused on getting a single deal over the line, but who could also see how our offtake agreements looked in aggregate and how agreements were performing in the field,” Bebbington said.
• Consider getting contract feedback from financing partners, even though they aren’t signing the papers.
• Simplify where possible. Frontier’s original carbon removal contract became “overcomplicated” over the course of several deals. The group had a single lawyer rewrite it, cutting negotiation timeframes from six months to two months.