Glossary entry

Offset or Offsetting

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Definitions

Offset or Offsetting

Offset or Offsetting means the purchase of carbon credits from a project:

(i) that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism];

(ii) where the emissions of GHG avoided, reduced or removed by the project are additional;

(iii)  that, in relation to GHG removals, employs long-lived storage methods that have a low risk of reversal over millennia;  

(iv) that prioritises the removal of GHG from the atmosphere rather than avoids or reduces third party emissions of GHG; and

(iv) that takes account of a just transition and addresses wider social and ecological goals.

Drafting notes

See TCLP’s Discussion Document on Offsets, Insets and Carbon Credits for more information about carbon credits purchased from regulated and voluntary markets, as well as what drafters need to consider when including Carbon Offsetting in contracts.

Drafters may prefer to specify which voluntary or regulated market they want to purchase carbon credits from.

The credits that can be used under the EU Emissions Trading System are specified in articles 58-61 of the Fifth Registries Regulation (Commission Regulation (EU) No 389/2013) and Article 11a(8) of the EU ETS Linking Directive 2004 (Directive 2004/101/EC), which was replaced by the EU ETS Amending Directive 2009 (Directive 2009/29/EC). Using this option would mean Emission Reduction Units (ERUs) from UNFCCC Joint Implementation (JI) projects would be permissible for use as offsets

For information on how organisations can offset their Residual Emissions from emission reduction or removal projects within their value chain, see the definition of Carbon Insetting.

 

Application

Corporate climate policies, supply chain agreements, climate laws, finance documentation.

Offset or Offsetting is used in the following TCLP clauses:

[Aatmay’s Clause] Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations;

[Alexandro’s Clause] Net Zero Sponsor Activation Clause; 

[Callum & Theo’s Clause] Climate Standard Transaction Terms; 

[Dottie’s Clause] Climate Purchase Agreement and Underwriting Sponsor Warranties; 

[Elliot’s Handbook] Net Zero Culture Employment Handbook; 

[Estelle’s Clause] Climate Standard of Care (Construction); 

[Evelyn & Ezra’s Clause] Securing Net Zero in Planning Development Projects; 

[Felix’s Clause] Net Zero Completion Adjustment Clause;

[Iris’ Clause] Climate Contract Risk Sharing (ex Force Majeure); 

[Jessica’s Clause] Carbon Contract Clauses for Environmental Performance, and Associated Incentives and Remedies; 

[Luna’s Clause] Net Zero Aligned Construction Modifications; 

[Ming’s Clause] Target Product Carbon Footprint (Schedule for Consumer Goods Contracts);

[Ragnar’s Clause] Green Company Articles; 

[Rory’s Clause] Net Zero Land Promotion Agreement; 

[Rosie’s Clause] Alteration/ Improvement Provisions in Leases to Improve Climate/ Environmental Impact of Buildings and Better Use of Shared Space; 

[Scarlett’s Performance Conditions] Environmental, Social and Governance (ESG) Based Performance Conditions for Employee Incentive Awards; and 

[Tristan’s Clause] Construction Materials: Procurement.