ERPA Contract Review & Negotiation for Brazil Projects

Key Takeaway

An Emission Reduction Purchase Agreement (ERPA) is the primary contract governing the sale of carbon credits in Brazil. A well-drafted ERPA allocates delivery risk, defines credit quality standards, establishes pricing mechanisms, and specifies governing law and dispute resolution. Brazilian ERPAs carry unique risks — land title uncertainty, indigenous community claims, IBAMA enforcement actions, and FX volatility — that standard international templates do not address. We review and negotiate ERPAs from both buyer and seller perspectives, ensuring Brazilian-law compliance and international-market acceptability.

---

What Is an ERPA?

An ERPA is a forward purchase agreement for carbon credits. The seller commits to deliver a specified quantity of verified emission reductions (or removals) over a defined period. The buyer commits to purchase those credits at an agreed price or pricing formula.

ERPAs differ from spot purchases in critical ways:

Feature	ERPA (Forward)	Spot Purchase
Delivery	Future, over 5-25 year term	Immediate
Price risk	Fixed, escalating, or indexed	Market price at purchase
Delivery risk	Seller bears (with mitigation)	None (credits already issued)
Counterparty risk	Significant (long-term exposure)	Minimal
Legal complexity	High (multi-clause, multi-year)	Low (simple sale agreement)
Due diligence required	Extensive	Moderate

For a comprehensive overview of ERPA structure and common clauses, see our ERPA Contract Guide.

---

Our ERPA Review Process

Phase 1: Initial Assessment (2-3 days)

We review the draft ERPA (or term sheet) and provide a risk matrix identifying:

• Red flags: Clauses that create unacceptable risk (e.g., unlimited liability, waiver of recourse, ambiguous delivery definitions)
• Yellow flags: Clauses requiring negotiation (e.g., force majeure scope, price adjustment triggers, termination rights)
• Green flags: Market-standard provisions requiring no modification

Deliverable: Written risk assessment with annotated contract markup.

Phase 2: Negotiation Strategy (1-2 days)

Based on the risk matrix, we develop a negotiation strategy prioritizing:

1. Must-have protections (non-negotiable)
2. Important concessions to seek
3. Trading points available for compromise
4. Walk-away triggers if negotiations fail

Phase 3: Negotiation Execution (1-4 weeks)

We negotiate directly with counterparty counsel (in Portuguese or English) on your behalf. Typical negotiation involves 3-5 rounds of markup exchange.

Phase 4: Execution Support

• Finalize bilingual contract text
• Coordinate execution formalities (notarization, apostille if required)
• Advise on closing conditions and escrow arrangements
• Register contract with relevant authorities if required

---

Critical ERPA Clauses for Brazilian Projects

Credit Quality and Eligibility

The ERPA must precisely define what constitutes a “Delivered Credit.” Key parameters:

Parameter	Why It Matters
Standard	Verra VCS, Gold Standard, SBCE-eligible, or other
Methodology	Specific methodology ID (e.g., VM0007 for REDD+)
Vintage	Year of emission reduction — older vintages trade at discount
Co-benefits	CCBS, SDG labels — command 15-30% price premium
Registry	Which registry the credit must be issued on
SBCE eligibility	Whether credits must qualify for SBCE compliance surrender

A common negotiation point: buyers want SBCE-eligible credits to maintain optionality for compliance market sales. Sellers resist because SBCE methodology requirements are still evolving and may be more stringent than current voluntary standards.

Delivery Obligations

Brazilian carbon projects face unique delivery risks:

• Deforestation events: Fire, illegal logging, or encroachment reducing project area
• Land disputes: Title challenges, possessory actions, or indigenous claims
• Regulatory changes: IBAMA enforcement actions, methodology revisions
• Weather events: Drought, flooding affecting reforestation growth rates
• Community relations: Conflict with local communities or traditional populations

The ERPA should address each risk through a combination of:

• Delivery shortfall mechanisms: Replacement credits, price adjustment, cure periods
• Buffer pools: Percentage of credits held in reserve (typically 10-20%)
• Insurance requirements: Environmental liability, political risk, or parametric insurance
• Escrow arrangements: Milestone-based payment release tied to verification

Pricing Mechanisms

Pricing Model	Description	Risk Allocation
Fixed price	Constant USD/tCO2e over term	Buyer bears upside risk, seller bears downside
Escalating fixed	Annual increase (e.g., +3%/yr)	Moderate balance
Floor + upside sharing	Minimum price + % of market above threshold	Balanced
Market-indexed	Tied to published index (e.g., CBL GEO, S&P Platts)	Seller bears basis risk
Hybrid	Fixed for initial tranche, indexed for subsequent	Project-specific

For current pricing benchmarks by project type, see Carbon Credit Pricing in Brazil.

Governing Law and Dispute Resolution

This clause requires careful thought for cross-border ERPAs:

Option	Advantage	Disadvantage
Brazilian law, Brazilian arbitration (CAM-CCBC)	Enforceable locally, lower cost	Foreign buyer unfamiliarity
Brazilian law, ICC arbitration	International enforcement, neutral forum	Higher cost
English/NY law, ICC arbitration	Familiar to international buyers	May not cover Brazilian-specific issues
Split: Brazilian law for land/environmental, English law for commercial	Best of both	Complexity, potential conflicts

We typically recommend Brazilian law with ICC or CAM-CCBC arbitration seated in Sao Paulo — this ensures full coverage of Brazilian regulatory and property issues while providing New York Convention enforcement internationally. See dispute resolution for detailed analysis.

---

Brazil-Specific ERPA Risks

Land Title Risk

Brazilian rural property titles can be uncertain. Chain-of-title defects, overlapping claims, and unregistered possessory interests (posse) are common, particularly in frontier areas where REDD+ projects concentrate. The ERPA should include:

• Title warranty: Seller represents clear title or valid surface rights
• Title insurance requirement: Where available
• Cure period: Time for seller to resolve title challenges before delivery default

Indigenous and Quilombola Rights

Under the Brazilian Constitution (Art. 231), indigenous lands are inalienable federal property. Carbon projects on or adjacent to indigenous territories face:

• FUNAI (National Indigenous Foundation) consultation requirements
• Free, Prior, and Informed Consent (FPIC) obligations
• Benefit-sharing mandates

The ERPA should allocate responsibility for community consultation and define consequences if consent is withdrawn.

INCRA Foreign Ownership Restrictions

If the seller entity has foreign shareholders, INCRA restrictions under Law 5.709/1971 may limit the project’s geographic scope. The ERPA should include representations regarding the seller’s INCRA compliance status.

FX and Payment

Cross-border ERPAs face BRL/USD volatility and BACEN FX regulations. Key provisions:

• Payment currency: USD, EUR, or BRL (most international ERPAs specify USD)
• FX rate: Spot rate on payment date, or fixed conversion rate
• BACEN compliance: Seller warrants that all payments comply with FX regulations
• Tax gross-up: Buyer pays stated price net of withholding; seller bears tax compliance

See cross-border transaction guidance and tax treatment.

---

ERPA Negotiation: Buyer vs. Seller Perspectives

Understanding both sides of the negotiation produces better outcomes. We represent both buyers and sellers, giving us insight into each party’s priorities and pain points.

Buyer Priorities

Priority	Negotiation Objective
Credit quality certainty	Tight credit specifications with rejection rights for non-conforming credits
Delivery security	Firm minimum quantities, escrow, parent guarantees
Price protection	Fixed or floor pricing; protection against market downturns
Flexibility	Right to reduce volume if market conditions change; assignment rights
SBCE optionality	Credits that can be used for compliance or voluntary retirement
Exit rights	Termination for cause, force majeure, change of law

Seller Priorities

Priority	Negotiation Objective
Revenue certainty	Committed purchase volume; advance payments to fund operations
Price upside	Market-indexed pricing; price escalation clauses
Delivery flexibility	Reasonable shortfall tolerance; makeup periods
Cost recovery	Advance payments or milestone-based pricing to cover development costs
Operational autonomy	Limited buyer interference in project management
Liability limits	Capped indemnification; exclusion of consequential damages

Common Negotiation Tradeoffs

Buyer Wants	Seller Wants	Typical Compromise
Fixed price	Market price	Floor + upside sharing
5% delivery tolerance	25% tolerance	10-15% tolerance with makeup
SBCE guarantee	Best efforts only	Best efforts + price premium if achieved
Unlimited indemnity	Capped indemnity	Cap at 100% of contract value
Termination for any shortfall	Cure period for shortfalls	Material shortfall (>30%) triggers termination after cure period
English law	Brazilian law	Brazilian law + ICC arbitration

---

ERPA Review Checklist

We evaluate every ERPA against this 20-point checklist:

#	Item	Status
1	Credit quality definition (standard, methodology, vintage)
2	Delivery schedule and quantities
3	Pricing mechanism and adjustment triggers
4	Payment terms and FX provisions
5	Delivery shortfall remedies
6	Force majeure definition and consequences
7	Termination rights and consequences
8	Representations and warranties (title, authority, compliance)
9	Environmental and social safeguards
10	Insurance requirements
11	Buffer pool provisions
12	SBCE eligibility provisions
13	Governing law
14	Dispute resolution mechanism
15	Confidentiality and publicity
16	Assignment and transfer restrictions
17	Tax allocation and gross-up
18	Reporting and audit rights
19	Change of law provisions
20	Boilerplate (notices, amendments, entire agreement)

---

Frequently Asked Questions

How long does an ERPA review take? Initial risk assessment in 2-3 business days. Full negotiation typically 2-4 weeks depending on counterparty responsiveness.

Should the ERPA be bilingual? Yes, for cross-border transactions. We draft parallel English/Portuguese versions with a clause specifying which language controls in case of discrepancy.

What if the seller uses a standard template (e.g., IETA)? IETA templates provide a useful starting point but do not address Brazil-specific risks. We adapt international templates for Brazilian legal requirements.

Can we include SBCE eligibility as a condition? Yes, but sellers will resist guaranteeing SBCE eligibility because the regulatory framework is still evolving. Compromise: best-efforts obligation to obtain SBCE eligibility with price adjustment if credits only qualify for voluntary market.

---

Why ZS Advogados

ZS Advogados combines deep understanding of Brazilian contract law with international transactional practice. Founded by the first American admitted to the Brazilian Bar (OAB/SP 351.356), we draft ERPAs that satisfy both Civil Law form requirements and Common Law commercial expectations. Our interior Sao Paulo location means we understand the on-the-ground realities of carbon projects — land access, community dynamics, environmental agency relationships — that inform practical ERPA risk allocation.

Review our case study for a real example of ERPA negotiation in a US-investor reforestation project.

Schedule a consultation to discuss your ERPA review needs.