Commodities and Derivatives Litigation Update - December 2025

New Greenhouse Gas Removal Business Model and Draft Contract

In August 2025, the UK Department for Energy Security and Net Zero published a new Greenhouse Gas Removal (GGR) business model, and accompanying draft GGR Contract. The aim of this new regime is to recognize that investment into carbon renewal projects and technologies will be significant, both to take necessary steps to remove carbon from the atmosphere and rebalance emissions, and to create a valuable economic impact, including significant job creation, by way of early investment into an emerging sector. The summary of the new framework published by the Department for Energy Security and Net Zero states that GGR technologies have the potential to play a key role in the plan to the UK to deliver clean power by 2030 and to accelerate to net zero across the economy by 2050. The vision of the department is to develop a sustainable market in which engineered GGR projects are funded by polluting industries, to compensate for their residual emissions. This recognizes the the need to encourage private investment into the GGR market, by way of seeking to establish suitable market conditions for such investment.

The GGR Contract Functions as a Contract for Difference

The contract is a “Contract for Difference”, which is an arrangement entered into typically by a “buyer” and “seller”, which provides that the buyer will pay to the seller the difference between the current value of an asset, and its value at the time that the contract was entered into. Under the GGR Contract, developers are given a price guarantee for qualifying GGR credits, in the form of a “strike price” that reflects the cost of the removal of 1 tonne of carbon dioxide from the atmosphere. Over the course of the term of the contract, the parties will negotiate the strike price based on the costs of the project being conducted by the developer (which can take into account eligible operational expenses and repayment of capital expenditure) plus a return rate on capital investment. The “Reference Price” under the GGR Contract reflects the market value of GGR Credits. In circumstances where there is no market for carbon removal, or no reliable price benchmark, this Reference Price will be based on the “Achieved Sales Price” for GGR Credits for initial projects. Under the GGR Contract, where the agreed strike price is higher than this reference price, the developer will be paid the difference by the Government. Where the Reference Price is higher than the Strike Price, the Developer will pay the difference to the Government. As a result, this provides a guaranteed income stream for developers, and provides for the risk of investing in GGR projects to be shared between the investor and the Government. There is also a Price Discovery Incentive, which is provided as an incentive for higher sales prices and projects. This regime is intended to create confidence among investors, in order to encourage private investors to invest into GGR Projects. It is also intended that this will help to build a sustainable GGR market, which will enable government intervention to reduce over time.

Other Contractual Terms

The GGR Contract is a private law contract with a fifteen-year term. The Parties to each GGR Contract will be a GGR developer and a government entity. The government intends to establish an entity named Low Carbon Contracts Company Ltd which will fulfil this purpose. The draft GGR Contract is governed by English law, and provides for disputes arising under it to be resolved by way of a specified dispute resolution procedure. The dispute resolution procedure requires the parties to first endeavour to resolve disputes through negotiation, following the failure of which, they may refer the dispute for resolution by way of arbitration under the LCIA Rules. Certain disputes may also be resolved through an expert determination procedure where this is explicitly specified under the contract, or whether the parties have agreed as such in writing.

            Further financial terms of the GGR Contract include a sales cap, which places a limit on the subsidy that is available to the GGR Developer. There is a defined “Initial GGR Contract Sales Cap,” which reflects the forecast total GGR Credits during the operational period of the GGR Contract. What this means in practice for each contract will be negotiated and agreed in respect of the particular project that is under consideration. During the term of the GGR Contract, GGR Credits will be accrued. Once the total reaches the GGR Contract Sales Cap, the developer will be considered to have achieved its return on investment, such that no further subsidy will be paid, and the GGR Contract will automatically expire. There is also an annual limit on the subsidy that is available to the GGR Developer, which is calculated pro-rata from the GGR Contract Sales Cap.

            The GGR Business Model also includes an opportunity for developers to receive a capital grant, which may amount to up to 50% of the project capex. The purpose of offering this grant is to support projects during their construction phase.

Expected Impact

The new GGR regime represents an interesting use of Contracts for Difference, in order to encourage investment into the sector. Greenhouse Gas Removal projects are likely to be an important part of the UK’s pursuit of its net-zero targets, because such projects seek to counterbalance the impact of other sectors which generate significant emissions, and in respect of which reduction of remissions is more challenging. The pursuit of public-private partnerships by way of the new GGR Business Model and draft GGR Contract seeks to achieve important investment into the sector, by introducing sharing of risk between the Government and the developers. This ensures that the burden of providing investment is not held solely by the Government, and that private developers that invest into GGR projects have some guarantee of return on investment. The new GGR Business Model and draft Contract therefore represents an important milestone in the pursuit of a net zero UK economy.