What is a Sustainability Offset Agreement ?

Sustainability Offset Agreement

A purchase agreement wherein a government or its agency, in contracting the purchase of a major product, requires the product manufacturer, within a specified time, to make an investment in a government-designated sustainability project and/or to pay for the transfer of sustainable technology to, and to provide training for, a government-designated public or private organization. The project investment, transferred technology and training, would carry sustainability multiplier(s) which, within a specified time, generate economic activity equal to the nominal value of the government’s major purchase and would achieve the project’s sustainability goals.

Example of a Sustainability Offset Agreement

A government (or its agency) is contracting the purchase of airplanes which have a total value of 1 billion USD. As a condition of the contract, the airplane manufacturer agrees to offset or set-apart 100% of the value of the original contract. The sustainability offset agreement requires that the airplane manufacturer provide the government with commercial benefits which will, over a ten-year period, have a value which is equal to the original contract, thereby creating a 1 billion USD sustainability offset obligation by the airplane manufacturer to the government; in other words, a 1 billion USD sustainability offset credit for the government. The airplane manufacturer will agree to the sustainability offset condition in order to win the original contract.

The sustainability offset agreement states that the government has a 25 million USD energy project which requires state-of-the-art power/heat co-generation technology, technical training and investment. It further states that the technology, training and investment will carry a 40 to 1 sustainability multiplier which will generate 1 billion USD worth of economic activity over a ten-year period and specifies the project’s sustainability goals.

After completion of delivery of the airplanes, the airplane manufacturer will pay for the 25 million USD energy project, thereby fulfilling its 1 billion USD sustainability offset obligation.

Sustainability Offset Agreement Equation