This clause sets a carbon budget for construction projects, along with the financial budget, to reduce greenhouse gas emissions.
Why use this?
This clause incentivizes parties to (1) utilize lower embodied carbon products and (2) support the market for lower embodied carbon materials.
Typical construction contracts incentivize project teams to procure the most cost-effective construction materials from a purely financial standpoint; this clause attempts to incentivize project teams to set and comply with a challenging embodied carbon budget and, in that process, to advocate for lower embodied carbon materials.
How to use this clause
Disclaimer - please read
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Carbon Budget means the maximum amount of Scope 1, 2 and 3 Emissions the Company [and its Affiliates] may emit for the specified period and shall be [●] tCO2e for the period [●] to [●], measured by an [independent expert] [Climate Professional] appointed by [●] in accordance with [the IPCC Sixth Assessment Report Global Warming Potential Values] [GHG Protocol].
Carbon Offsets means the purchase of a quantity of Green-e certified carbon credits equal to the amount of carbon utilized on the Project that exceeds the Carbon Budget.
Carbon Dioxide Equivalent (CO2e or CO2eq) means a unit of measurement that is used to standardize the climate effects of various Greenhouse Gases.
Design-Build Team means the Party or Parties that perform both design and construction services. The Design-Build Team is a single point of responsibility for both design and construction.
Greenhouse Gases (‘GHG’ or ‘GHGs’) means the natural and anthropogenic gases which trap thermal radiation in the Earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) or otherwise specified by the UNFCCC, and which currently include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) and nitrogen trifluoride (NF3).
Greenhouse Gas Emissions (‘GHG Emissions’) means emissions of Greenhouse Gasses over a specified area and period of time, each expressed as a total in units of carbon dioxide equivalent (CO2e) [and calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard or such other equivalent and generally recognized greenhouse gas emission calculation methodology].
Lower Embodied Carbon Materials means the lowest embodied carbon product that is currently available in the market, as further defined below:
- products that meet or exceed Material Baselines, as established by the latest published version of the Material Baseline Report, authored by the Carbon Leadership Institute.
- for materials not listed, the Design-Build Team shall utilize the lowest embodied carbon available in the market.
- for all other materials, the Design-Build Team shall request Environmental Product Declarations from the manufacturer (EPDs) and provide written proof of the same.
Project means the structure or structures to be designed and built by the Design-Build Team, at a site identified by the Owner.
[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. Carbon Budget
1.1 In response to an Owner-issued Request for Proposals (RFP) the Design-Build Team shall provide the Owner with a Carbon Budget that includes Lower Embodied Carbon Materials based on a baseline and calculations derived from the Owner-approved tools.
1.2 The Design-Build Team shall use best reasonable commercial efforts to calculate and document that the total embodied GHG Emissions in the materials and goods used to construct the Project, and GHG Emissions emitted in the construction of the Project, are projected not to exceed the Carbon Budget.
[In providing opinions of probable carbon budget, the Owner understands that the Design-Build Team has no control over costs, the price of labor for the cost of materials or the pricing, and that the Design-Build Team’s projections of the Carbon Budget are to be made on the basis of Design-Build Team’s qualifications and experience; as such, the Design-Build Team makes no warranty, express or implied, as to bid or actual costs.]
[If, despite commercially reasonable efforts, a Lower Embodied Carbon Materials product is not available, or if for some other reason procurement of a Lower Embodied Carbon Materials option would actually exceed the Project’s overall Carbon Budget (i.e. transportation impacts), or the Owner’s Budget, the Design-Build Team shall, within 10 days, bring this issue to the Owner’s attention and suggest reasonable alternatives.]
Drafting note: examples of reasonable alternatives are:
OPTION A: Carbon Budget Shared Reward. Design-Build Team will develop a Shared Reward Pool, with language similar to ConsensusDocs 300.
OPTION B: Carbon Budget Bonus. The Design-Build Team shall also propose to the Owner an additional percentage of its fee that the Design-Build Team is willing to put at risk (‘Carbon Budget Bonus’). Should the Design-Build Team meet or better the Project’s Carbon Budget, they will receive the Carbon Budget Bonus, payable within 30 days of Substantial Completion. If the Design-Build Team does not meet or better the Carbon Budget, the Carbon Budget Bonus will not be paid by the Owner.
Example: Between 1 and 5% of the Design-Build Team’s fee, this is separate from project retainage. For example, if the Design-Build Team’s basic fee is $1M, it could propose a Carbon Budget Bonus of $50,000 (for a total proposed fee of $1,050,000). The basic fee is paid like on any other project, subject to retention, withholding, etc. per the contract documents.
OPTION C: Carbon Budget Payment. If the Carbon Budget of the Project is exceeded, the harm to the project and the Owner will be difficult to quantify. As such, the Design-Build team agrees that this harm shall be quantified as the cost of Carbon Offsets, purchased by the Owner in the amount of Carbon Dioxide Equivalent of Greenhouse Gas Emissions exceeding the Carbon Budget. The price of Carbon Offsets shall be determined at the date of Substantial Completion.] The Design-Build Team shall pay this amount to the Owner within 30 days of Substantial Completion.