incentivise-emissions-reductions-through-gain-share.md

title: Incentivise Emissions Reductions through Gain-Share excerpt: date: 2024-08-22T10:00:43Z modified: 2025-07-23T11:29:59Z file_type: md permalink: clauses/incentivise-emissions-reductions-through-gain-share.html wpid: 5851 status: publish type: clause 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 eleventyComputed: 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 layout: layouts/clause.njk

Incentivise Emissions Reductions through Gain-Share

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.]