Carbon credits and carbon sequestration are hot topics. Companies that pledge to be carbon neutral look to agriculture to help fulfill those promises.

That puts you in the driver’s seat. But carbon contracts are not one-size-fits-all. There are red flags you should pay extra attention to, such as:

Is double dipping allowed? Watch for ‘stacking limitations’ in a carbon contract. “At a base level it means you can't take Farm A and sign it up with carbon company No. 1 and then take that same farm and also sign it up with carbon company No. 2,” says Texas A&M AgriLife Extension Agriculture Law Specialist Tiffany Lashmet. “You can't double sell the same carbon credits.”

A 10-year contract for carbon sequestration is not uncommon, says Texas A&M AgriLife Extension Agriculture Law Specialist Tiffany Lashmet. (Photo Shelley E. Huguley)

That seems reasonable. But some contracts are broadly written and could also prohibit a producer from qualifying for government programs related to carbon. Could those programs offer more compensation than your carbon contract? Lashmet says based on her numbers it’s likely, so you need to weigh your options carefully.

Carbon contracts could also disqualify producers from government payments such as ARC/PLC or EQIP, or even crop insurance. So, pay attention to the terms of any particular contract.

The contracts are long

A 10-year contract is not uncommon, Lashmet says. The goal of sequestration is to remove carbon from the atmosphere for years.

Related:4 points to consider before you sign a carbon contract

Even so, watch for extensions. Some contracts allow the aggregator company to take an extension at their own discretion at the end of the term.

Be mindful of any discussion of permanence. “Maybe it's a 10-year contract, but there's a permanent requirement that makes you not do anything to undo the carbon that's been stored for an additional time. Watch for that,” Lashmet says.

Be wary of offers to ‘try’ a contract with a promise that you can just walk away. “Can I tell you a lawyer's secret? You can never just walk away from a contract,” quips Lashmet. “That's why people like me have jobs, to make sure that doesn't happen.”

Beware of penalties

Contracts often have steep early termination penalties. A producer may be required to pay back money already received and forfeit any bonus payments.

Also, be aware of legal and drafting fees and measurement costs.

Some contracts are subject to a vesting payment. “Maybe your payments don't vest until you've had them for five years. There's one contract that vests at 50% in year one and then 10 additional percentage points through year five. So, if I quit in year three, I'm going to walk away with 70% of the money I earned, not 100%.”

Related:Getting paid for carbon is easier now

Look for shady termination terms

Review the contract for statements regarding the company’s right to terminate the contract. Lashmet read a contract that stated, “If carbon offset customer data or market conditions are deemed by the company in its sole discretion to be insufficient for purposes of the project, the company may terminate this agreement upon written notice to the parties.”

Under those terms, it sounds like the company can walk away. “But who can't just walk away? You,” she concludes.