GOVERNMENT-BACKED OFFTAKE GUARANTEES

An offtake contract is a long-term agreement under which a buyer promises to purchase future removals. A government-backed offtake guarantee promises that a public fund or development bank will pay the supplier if that buyer fails to make a contracted purchase or will arrange a replacement buyer on predefined terms. This makes the contracted income more dependable to lenders and can help projects secure finance. Unlike public procurement, government is not the normal buyer. Unlike a contract for difference, it does not guarantee a target carbon price. It responds only to specified buyer failure.

Coverage must state which buyers, removal methods, contracts, payment failures and years qualify. Government may cover all missed payments or only a share, and may charge the buyer a fee, require security or set a waiting period before paying. Claims should cover only independently verified tonnes, with remedies when removal is not delivered or stored carbon is later reversed. The guarantor also needs limits for projects and the portfolio, checks on buyer and supplier finances, rights to recover payments or take over the contract after a claim, treatment of other public support, and enforceable terms for cross-border contracts and currencies.

Many CDR projects need loans to build. Before lending, banks ask whether the project's future buyers are likely to honour their contracts. A public guarantee can make that income more dependable by paying the supplier if a covered buyer fails. This can help the supplier borrow more, pay less interest or secure all the funding needed to begin construction sooner. It may also allow smaller or newer buyers to join a multi-buyer contract without placing the whole project at risk.

A payment guarantee cannot rescue a project unable to build or deliver because it covers buyer non-payment, not supplier failure. A replacement buyer can preserve a temporary outlet, but not create lasting demand if no commercial buyer returns. Weak checks can shift foreseeable losses onto taxpayers, while unclear triggers can delay cash. Simultaneous failures may exhaust the fund. Full coverage can weaken contract screening, while scarce support may go to projects that could finance themselves.

Monitoring & Evaluation: The public guarantor should compare contracts signed, guaranteed tonnes, contract length, private finance raised and time to secure full project finance against similar unsupported projects. It should also publish premiums, exposure, buyer concentration, verified delivery, claims, recoveries and reversals. Rising defaults or weak additional investment should trigger tighter eligibility, higher fees, lower coverage or suspension of new guarantees.

Before designing support, the treasury or public bank should ask suppliers which viable projects cannot secure loans. Lenders could help identify what coverage and contract length would change financing decisions. Buyers can describe and validate assumptions around feasible commitments.

International development banks can provide payment guarantees, while supranational funds, national treasuries, regional governments and cities can guarantee eligible purchase contracts where their financial law permits. The mechanism is the same at every level, but scale and fiscal capacity differ. Cities and regions are best suited to individual local projects. Larger institutions can spread risk across more buyers and projects. A larger institution may also reimburse part of a smaller guarantor's losses.