Glossary

Forwards

A forward is a contract to buy or sell a specified amount of a certain item at an agreed price and date in the future. For example, a farmer may make an agreement in March to sell a ton of apples for $400 the following October. Payment is settled at an agreed date in the future, or on delivery of the asset. 

Forward contracts are derivatives that are typically arranged directly between two parties (called over-the-counter) according to specifically written contracts. In this respect, they differ from futures, which serve a similar purpose but are traded on exchanges.

A significant proportion of carbon credits from the CDM are first traded as forwards. As such, the project developer takes responsibility for the issuance and delivery of credits, for which the buyer must then pay. A collapse in carbon prices has let to many sellers defaulting on these agreements, or taking advantage of UNFCCC delays in issuing credits to renegotiate them.

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