It’s not often that we get a glimpse under the hood of offtake agreements — whether for renewables, storage, or fuels. And it’s particularly uncommon in carbon removal, a market that, despite early investments from both the public and private sectors, remains firmly in the “figuring it out” phase.
But last week, Frontier, the Stripe-led advance market commitment that has to date contracted $317 million in carbon removal, sought to give the market an unusual leg up by publishing the template it uses for offtake agreements. According to Ryan Orbuch, partner at Lowercarbon Capital, the key benefit of publishing Frontier’s offtake template is getting everyone — buyers, suppliers, and project financiers — on the same page.
“Standard PPAs massively accelerated clean energy,” Orbuch said, “and this can do the same for carbon removal.”
Given the relative immaturity of most carbon removal technologies, the template differs from standard offtake agreements in other industries in several ways. Perhaps the most notable though, is the leniency it offers CDR startups in terms of shortfalls, delays, and damages.
Broadly, said carbon removal advisor Robert Höglund, the terms of the agreement seem set up to help suppliers grow. It acknowledges the realities — and likelihood of problems — of first-of-a-kind projects in a market that’s still struggling with low confidence and measurement standardization.
Höglund pointed to the template’s approach to damages as a key example. In Frontier’s approach, suppliers aren’t punished for under-delivering to buyers as long as they succeed in delivering a minimum share of the total contract volume in a given year. In the event that they can’t meet even that minimum, a buyer has the right to terminate the contract — but the supplier isn’t subject to damages in any case.
Frontier suppliers also have grace periods for certain milestones outlined in the contract, meaning they have additional flexibility built into the timeline. For example, CDR companies can get six extra months to finalize project details like permitting, engineering designs, and sourcing energy. Once those are ironed out, the buyer is obligated to pay for the resulting removal.
That approach is designed to offer more confidence to project financiers, who can be sure that buyers are committed to a project even amid shifting timelines and quantities, Frontier’s head of deployment Hannah Bebbington wrote in a post about the offtake agreement.
“This is an early market and it is inevitable that some technologies will not work,” said Bebbington. “In the interest of attracting many more entrepreneurs, investors, and financiers to the space, we want to avoid a supplier facing enormous penalties if it turns out that their project doesn’t work as expected.”
That’s likely to change as the market evolves, though: “As the market scales, and eventually new policy regimes exist, buyers may start to face real monetary damages if CDR is not delivered on-time-and-in-full, and the contracts may evolve to reflect that reality,” she added.
Streamlining market growth
On the buyer side, termination rights are limited to a handful of scenarios including mutual consent and a material breach of contract. That’s key for making projects bankable, and ensuring buyers can’t “wriggle out of the agreement” easily, Bebbington said.
That said, the offtake template makes it clear that punitive damages — awarded on top of lost compensation for the purpose of punishing a defendant for bad behavior, for example delivering invalid tons — should be used sparingly. These are the only cases where the template uses monetary damages.
In part because damages are limited, Frontier’s template doesn’t require CDR developers to provide collateral for their projects (though the template notes that for projects where the offtake is a physical good, like concrete, a security requirement could make sense).
The template also doesn’t include guaranteed volumes, an element commonly found in renewable energy offtake agreements that requires a developer to make up any volume shortfalls by sourcing from elsewhere.
“The carbon removal market is still a nascent market, so there is not a liquid market to source from, and we are only interested in buying from specific carbon removal technology types,” Bebbington explained.
All of these elements essentially serve as a starting point for the rest of the industry, Höglund said.
“The offtake agreement template will save a lot of work for many companies in the space and help set aligned expectations between sellers and buyers,” he said.
