--- title: Incentivise Emissions Reductions through Gain-Share date: 2024-08-22T10:00:43Z modified: 2025-07-23T11:29:59Z permalink: "https://chancerylaneproject.org/clauses/incentivise-emissions-reductions-through-gain-share/" type: clause status: publish excerpt: "" wpid: 5851 jurisdiction: - USA maintenance-status: - Not maintained practice-area: - Commercial - Construction - Government and public law - Real estate and property - Supply chain sector: - Construction and infrastructure - Manufacturing and industrials clause_child_name: "Zeela's Clause" clause_summary: "

This clause incentivizes a counterparty to reduce greenhouse gas emissions in exchange for a gain-share payment calculated by reference to the value of the goods or services it provides.

" clause_last_updated_date: 2024-09-10 related_clauses: false --- ## Child’s name Zeela’s Clause ## Summary This clause incentivizes a counterparty to reduce greenhouse gas emissions in exchange for a gain-share payment calculated by reference to the value of the goods or services it provides. ## What this clause does Receiving a gain-share payment in exchange for reducing greenhouse gas (also called GHG) emissions during the term of a contract is a powerful incentive for a contracting party to decarbonize – especially in sectors that operate on narrow margins (like construction) or commercial environments undergoing aggressive cost savings. ## Clause Content _\[Drafting note: Capitalized terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.\]_ **1. Measure, manage, and report GHG Emissions** 1.1 Party B shall measure, manage, and report in writing its GHG Emissions for the term of the contract and do so in accordance with the provisions of this clause. 1.2 Party B shall formally adopt the Carbon Footprint Standards in its GHG Report. 1.3 Party B’s board shall nominate one of its directors or officers to be responsible for ensuring that Party B complies with the Carbon Footprint Standards and requirements of this clause during the Term. 1.4 \[Within 3 (three) months after each anniversary of the date of this Agreement\] OR \[By March 1st of each year\] or \[_other date_\], Party B shall submit a GHG Report to Party A. **2. Contents of GHG Report** 2.1 This clause \[2\] sets out the minimum requirements for the contents of the GHG Report. 2.2 The GHG Report shall report and \[where appropriate\] explain: 2.2.1 the industry best practices on managing and reducing GHG Emissions that Party B has followed in the previous contract year, and how Party B has applied them; 2.2.2 Party B’s measured Scope 1, 2, and 3 Emissions; 2.2.3 the measured Services Carbon Footprint; 2.2.4 the measured Supply Chain Carbon Footprint; \[and\] 2.2.5 the reduction in GHG Emissions achieved by Party B measured against the Scope 1, 2, and 3 Emissions stated in the preceding GHG Reports and in accordance with this clause \[2.2\]; 2.2.6 Party B’s existing and future initiatives to reduce Scope 1, 2, and 3 Emissions and the expected impact of those initiatives; 2.2.7 any laws and regulations that may help or hinder Party B’s ability to reduce Scope 1, 2, and 3 Emissions; and 2.2.8 any barriers to reduction of Scope 1, 2, and 3 Emissions. 2.2.9 \[_Other requirements_\] **3. Verification** 3.1 Party B shall cooperate and collaborate with Party A on: 3.1.1 how Party B measures, manages, and reports on its GHG Emissions; 3.1.2 Party B’s preparation of each GHG Report; and 3.1.3 other obligations on Party B under this clause. 3.2 If Party A at any time reasonably requires it (and not more than once during each contract year), Party B shall appoint a duly qualified external auditor or other verification authority to certify the contents and accuracy of its GHG Report. 3.3 Party B shall bear all costs associated with the external auditing and verification of the GHG Reports. \[_Drafting note: To go further, Party A may request that the external auditor or verification authority be acceptable to Party A, with consent not to be unreasonably withheld or delayed. Party B could also request a cap on the costs of the audit._\] **4. Reduction of GHG Emissions** 4.1 Party B shall reduce its GHG Emissions by no less than the percentage shown in clause 4.2 in each period to which a GHG Report relates. 4.2 Party B will reduce the Services Carbon Footprint by \[●\] percent each contract year (when compared to the previous year) of the Term for the duration of the Term. **5. Gain-share** 5.1 Where Party B reduces the Services Carbon Footprint by more than the percentage stated in clause \[4.2\] in any one year then the following gain-share mechanism shall apply (Gain-Share Mechanism). 5.2 YX = Services Carbon Footprint in Year X (measured in tons of CO2e) YX+1 = Services Carbon Footprint in Year X+1 (measured in tons of CO2e) \[●\] percent x YX = the agreed Reduction in Services Carbon Footprint set out in clause 4 (Agreed RSCF) (measured in tons of CO2e) YX – YX+1 = the absolute reduction in Service Carbon Footprint between Year X and Year X+1 (measured in tons of CO2e) (Total RSCF) Total RSCF – Agreed RSCF = absolute reduction in Services Carbon Footprint above the agreed \[●\] percent required by clause 4 (Additional RSCF) Additional RSCF x market rate to offset 1 ton of CO2e x 50 percent = payment made to Party B under the Gain-Share Mechanism (Gain-Share Payment). 5.3 The maximum cumulative value of any Gain-Share Payment(s) due to Party B in any year of the Contract shall be equal to \[●\] percent of the value of the Services provided by Party B to Party A in respect of that same year. 5.4 The Gain-Share Payment shall only become due for payment after any verification process pursuant to clause \[3\] is complete. 5.5 Party B shall invoice Party A for any Gain-Share Payment after it has become due for payment and in the absence of any dispute about the level of the Gain-Share Payment it shall be paid by Party A as if it were part of the payment for the Services. \[_Drafting note: For section 5.5 above, in case of dispute, parties may choose to include dispute resolution language to address those disputes. In addition, parties should specify when payment is due._\] 5.6 Party A may require Party B to invest at least \[●\] percent of any Gain-Share Payment(s) received by Party B into green or sustainability initiatives. Party A reserves the right to ask Party B for written evidence that it is complying with this requirement. \[_Drafting note: The gain-share clause could also be structured to create an incentive to meet the original goal, as opposed to only applying to situations in which a Party exceeds the goal, which may be more realistic for certain parties._\] ## Topics **Jurisdictions:** [USA](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/jurisdiction/usa.md) **Maintenance status:** [Not maintained](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/maintenance-status/not-maintained.md) **Practice Areas:** [Commercial](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/practice-area/commercial.md), [Construction](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/practice-area/construction.md), [Government and public law](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/practice-area/government-and-public-law.md), [Real estate and property](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/practice-area/real-estate-and-property.md), [Supply chain](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/practice-area/supply-chain.md) **Sectors:** [Construction and infrastructure](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/sector/construction-and-infrastructure.md), [Manufacturing and industrials](https://chancerylaneproject.org/wp-content/uploads/wp-mfa-exports/taxonomy/sector/manufacturing-and-industrials.md)