If the actual (Ex-post) credits are less than 80% of the projected (Ex-ante) credits due to natural or model risk-related reasons, buyers are not obliged to purchase the credits and have the option to terminate the forward contract (this does not apply to Carbon Negative sites). In a termination scenario due to natural or model risk-related reasons, Project Managers can:

• Receive a lump sum with the non-vested payments in the escrow account.

• Stop reporting on whether carbon release may have occurred (and stop holding practices for carbon retention purposes). Therefore, these actions take place in the following registries:

  • Buffer pool registry: the associated Ex-post removal credits are put on hold (in case Project Managers enter into any new contracts where they continue reporting on potential carbon release and where they continue holding practices).

  • General registry: the associated Ex-post removal credits in the buyer(s) accounts are flagged as there is no longer a guarantee of carbon retention or carbon release reporting.

• Keep their non-committed Ex-post credits available for sale in the spot market. The same applies to committed Ex-post credits still in pre-verification status: they turn into non-committed credits and can be made available for sale in the spot market.

• Enter into any new contracts in the forward market for any of their Ex-ante credits (resetting the Baseline and using the forward price curve from that moment in time). In the case of Ex-ante credits that had a Committed status in the general registry, the following actions take place:

  • They are converted back into a Validated status in the Project Manager's account.

  • They are cancelled in the buyer 's account.

Counterparty Ex-post risk is related to instances where buyers do not pay for Committed credits once they have been validated. This can happen for a variety of reasons, including the buyers going bankrupt or breaching the contract (e.g., in a market that is in backwardation as the buyer wishes to buy at a spot price that is lower than the contract price).

• Unlike in a model or natural Ex-ante risk scenario, buyers are not contractually allowed to terminate the forward contract in this type of scenarios. Therefore, at Trinity's discretion, the buyer might be restricted from listing any future Mitigation Plans on the general registry.

• Project Managers get the same treatment as in the termination clause for natural and model Ex-ante risk.

Natural Ex-Post risk is managed by a buffer pool of non-tradable removal credits (which corresponds to a 20% deduction from all removal carbon credits post yield reduction adjustment, regardless of whether or not they relate to Mitigation Practices that must be held for the 10-year Retention Period) that is set apart into a shared buffer pool registry, such that:

• Carbon release can be detected through the audits conducted by verifiers, and/or as part of the annual mandatory reporting where farmers are required to communicate any natural event that may have caused carbon release.

• Project Managers will not have to use any cash to replace credits in the buffer pool registry in order to compensate for carbon release due to natural risk-related reasons.

• If the shared buffer pool is sufficiently large, buyers are protected against carbon reversals by the buffer pool, so they do not have to buy insurance to protect against adverse weather events. The buffer pool protection applies for 10 years, at least: we do not limit the protection to 10-years because the reporting (and, therefore, the enforcement of the risk management framework) is done for the duration of the contract (which may be longer than 10 years).

Termination associated with contractual risk scenarios can be triggered by the following actions:

• A verification report is submitted with a rejection rating (e.g. due to poor farm management practices, detection of fraud committed by the farm or land manager, etc.).

• If the actual (Ex-post) credits are less than 80% of the projected (Ex-ante) credits due to Mitigation Practices that were not part of the original Mitigation Plan.

  • There is an exception to this rule in the case of arable enterprises where farmers have committed to reduced tillage or no till. In these instances, they have the option to plough the field once within the 10-year retention period due to a valid reason as determined by the verifier (e.g., herbicides are banned by the Government, there is a material pest issue, etc.).

• Project Managers cancel the contract prematurely or are unable to meet its obligations due to illness, sale of the farm, or other unforeseen non-natural events (e.g., it would not apply to farmers ploughing the field during a year of adverse natural events because this would be covered by the natural Ex-post risk framework).

  • There is an exception to this rule where the Project Manager chooses to reset both the price and the Baseline after 3 years (e.g., in a market that is in contango as the Project Manager wishes to sell at a price that is higher than the contract price). In this scenario, Project Managers are subject to the termination rules of the natural and model Ex-ante risk framework, but they will walk away from non-vested payments unless they engage in a new forward contract with the buyer(s) at a mutually agreed forward price curve (in which case the funds held in the escrow account on behalf of the Project Manager remain in place).

In any of the above instances, the Mitigation Plan may be put on hold and the Project Manager will then be allowed 3 months to remedy the faults found. Otherwise, the Mitigation Plan will be deemed non-compliant, subject to dispute resolution as stipulated in the Trading Terms. If the dispute is not resolved, then termination is enforced as follows:

• All non-vested payments in the escrow account are forfeited. The funds return to the buyers (pro-rata).

• Project Managers stop reporting on whether carbon release may have occurred (and stop holding practices for carbon retention purposes). Therefore, these actions take place in the following registries:

  • Buffer pool registry: the associated Ex-post removal credits are cancelled because there is no guarantee of carbon retention or carbon reversal reporting.

  • General registry: the associated Ex-post removal credits in the buyer(s) accounts are flagged as there is no longer guarantee of carbon retention or carbon release reporting.

• Any Ex-post credits not sold yet (i.e. non-committed or committed but still in pre-verification status) are cancelled in the general registry, so that they cannot be sold in the spot market.

• All Ex-ante credits are cancelled in the general registry, so that they cannot be sold in the forward market. If the Ex-ante credits had been committed, they are cancelled in the buyer(s) accounts from the general registry.

• At Trinity's discretion, the Project Manager might be restricted from listing any future Mitigation Plans on the registry.