Forest Offset Credits: A Cornerstone of Sustainable Development on Aboriginal Lands

  1. Part I: The social, economic, and environmental benefits of carbon offset projects

Since the arrival of Europeans in North America, the use and management of natural resources on Aboriginal lands have been a frequent source of controversy and dispute. These disputes have centred around issues of ownership and control, but they have also often pitted economic interests – including those of Aboriginal communities themselves – against protection of the environment and of traditional sites.

The emergence of a new commodity – carbon credits – offers the intriguing possibility of engaging in economic development that also benefits the environment. The generation and sale of carbon credits creates wealth through environmental protection. As such, carbon offset projects offer a promising and still largely untapped source of economic development for Aboriginal communities.

As the world grapples with climate change and global warming, increased environmental and economic value is being attributed to carbon offset projects. Carbon credits can be generated by non-regulated entities that undertake “offset projects” which either remove greenhouse gas (“GHG”) emissions from the atmosphere and store them in natural reservoirs, or reduce or avoid GHG emissions altogether. Quantified emission reductions achieved by carbon offset projects can be converted into carbon credits recognized by regulatory cap-and-trade systems, voluntary carbon markets, or both. These credits can then be sold within a cap-and-trade system or on voluntary carbon markets. Regulated entities that purchase the offset credits may apply them to offset emissions in order to meet emissions targets. Non-regulated entities may purchase offset credits or offset projects to speculate, for reasons of corporate social responsibility, to offer carbon neutral products or to retire the credits for conservation purposes.

The types of offset projects that qualify for mandatory and voluntary carbon markets vary substantially. Recognized carbon offset projects include forestry projects (afforestation/ reforestation, forest management, avoided deforestation), agricultural projects (soil carbon sequestration and manure management), waste management projects (landfill gas recovery), renewable energy projects and energy efficiency projects. Most emerging domestic and regional carbon markets -- including Canada’s proposed offset system, the Western Climate Initiative, the Alberta carbon offset system, and Ontario’s proposed system which is currently under discussion -- propose to include afforestation and other carbon sequestration projects as permissible offset activities. In addition, such projects can be used to create credits for the voluntary markets. Rigorous analysis during the early stages of project planning and development is, however, required to ensure that a carbon offset project is eligible and meets the specific requirements of any given market and, in particular, to determine the eventual liquidity of the credits.

Forest offset projects are cost-effective ways to generate carbon credits either by absorbing carbon dioxide from the atmosphere and storing it in plant biomass, or by preventing the release of carbon dioxide into the atmosphere. For example, afforestation projects involve planting trees on previously non-forested lands to create new forests or woodlots. New trees act as a carbon “sink” by absorbing carbon dioxide from the atmosphere. During the process of photosynthesis, trees convert atmospheric carbon dioxide and water into oxygen and organic compounds (carbohydrates) using energy from sunlight. The organic compounds (containing carbon) are then incorporated into plant tissue (biomass) where the carbon is stored or “sequestered”. New forests or woodlots created by afforestation projects act as carbon storage reservoirs which reduce the concentration of carbon dioxide in the atmosphere. Quantified emission reductions achieved by afforestation projects can then be converted into carbon credits which can be sold on carbon markets.

Forest carbon offset projects may be of particular interest to Aboriginal communities because they achieve a variety of social, economic, and ecological benefits in addition to sequestering carbon dioxide. New or better managed forests or woodlots provide numerous ecological services including new habitat for wildlife, links between previously isolated biological communities, protection of ground and surface water quality and quantity, erosion control, as well as economic and recreational benefits.

Forest carbon offset projects therefore represent significant opportunities to engage in sustainable development because they provide a source of revenue to create, protect, and manage forests to sequester carbon dioxide in a way that achieves a myriad of additional social and ecological benefits.

  1. Part II – Legal ownership of carbon credits generated by projects situate Aboriginal land  

A key concern arising from many carbon offset projects is who owns the carbon credits generated by the project.

Clear legal ownership of carbon credits created by offset projects should be established at the onset of project development as it is a required element for the registration of projects with third party registry and standards. Disputes about ownership may delay certification of the carbon credits until the dispute is resolved, and they will ultimately reduce profits by increasing the per unit cost of the carbon credits as a result of legal fees and other costs associated with settling ownership disputes. Moreover, delineating who retains the rights to carbon credits, or how rights will be apportioned, provides a degree of cost and revenue certainty which is essential to project planning, financing, and development.

Clearly identifying ownership of, and delineating long-term legal liability for, carbon credits generated by offset projects is even more essential in the case of biological sink projects such as afforestation projects where tree harvesting, natural disasters, and pest outbreaks may reverse carbon sequestration by emitting previously stored carbon dioxide into the atmosphere. A carbon deficit will arise when credits have already been issued for the carbon dioxide that was originally sequestered in the forested area but which is subsequently released as a result of such activities. Carbon markets may manage this risk by allowing only temporary credits to be issued, by requiring project proponents to buy insurance to compensate for reversals, by holding back a given percentage of credits in a reserve pool, by requiring proponents who do not own the land on which the offset project is implemented on to obtain a conservation easement over the land, and ultimately, by holding project proponents liable for carbon deficits. Project proponents must therefore delineate and clearly apportion or assign the liability attached to this risk where ownership of the carbon credits generated by the carbon offset project is uncertain or apportioned between persons.

In the absence of contracts or other legal agreements that establish ownership of carbon credits generated by offset projects, disputes over ownership may arise where projects are:

  • implemented on Crown land;
  • implemented by the lessee and not the land owner;
  • implemented using a proprietary technology to achieve emission reductions;
  • implemented by a proponent that is not the same person as the downstream user; and
  • implemented on lands subject to Aboriginal claims.
  • Project proponents, Aboriginal communities and regulatory bodies should be aware of the opportunities and risks involved with developing carbon offset projects on land subject to Aboriginal claims.

Aboriginal communities may be able to claim ownership of carbon credits through: (a) their direct interest in the land, or (b) their Aboriginal and treaty rights.

  1. Aboriginal interests in land on which carbon offset projects are developed
  1. Recognized Aboriginal interests in land

Aboriginal communities may be able to claim ownership of carbon credits generated on land: (1) held under Aboriginal title, (2) on reserves, and (3) subject to settled land claim agreements. In other circumstances, such as unsettled land claims and claims to Aboriginal rights over traditional territory, an ownership interest in carbon offset credits may still be asserted, but may require negotiation, revenue-sharing or even litigation to determine the existence or extent of that interest.

Aboriginal communities’ ability to claim ownership of carbon credits generated by offset projects on land held pursuant to Aboriginal title or subject to Aboriginal land claims derives from the bundle of rights attached to Aboriginal title. The rights that flow from Aboriginal title include the right to exclusively use and occupy the land, the right to determine how the land will be used subject to the limits inherent to Aboriginal title, and the right to, or ownership of, natural resources on the land.

It follows from the Supreme Court’s dicta in Delgamuukw v. British Columbia, the leading case in Canadian law on Aboriginal title, that Aboriginal title holders own carbon credits generated by offset projects that they develop and implement on land held under Aboriginal title. Carbon offset projects therefore provide an important way that Aboriginal communities can use land held pursuant to Aboriginal title to buttress their efforts to develop sustainably.

Second, Aboriginal interests in reserve lands also provide a sufficient basis for Aboriginal communities to claim the benefits flowing from ownership of carbon credits generated by offset projects implemented on reserves. Aboriginal interests in reserve lands often include surface and mineral rights. It is therefore likely that such interests also include the right to the benefits flowing from carbon offset credits generated on reserve lands.

Legal title over reserve lands is held by the Crown “for the use and benefit of the respective band”. Rights to carbon credits generated on lands in reserves will therefore be held by the Crown in trust for the benefit of First Nations communities. Project proponents (including First Nations communities), regulatory bodies, and purchasers of carbon credits generated by offset projects implemented on reserves will need to ensure that the requirements for granting an interest in reserve lands prescribed by the Indian Act are complied with.

Furthermore, the Supreme Court’s holding in Blueberry River Indian Band v. Canada suggests that the Crown may be under a fiduciary duty to retain the rights to carbon credits for the benefits of Aboriginal communities when it sells or leases surrendered reserve lands in the absence of a clear mandate from a band to sell the rights.

Third, Aboriginal communities may also be able to claim ownership of carbon credits through the rights and interests in land established by settled land claim agreements. For example, the Nisga’a Final Agreement between the Nisga’a First Nation, British Columbia, and Canada provides that the Nisga’a Nation owns Nisga’a Lands in fee simple, and further clarifies that the Nisga’a Nation owns all forest resources on Nisga’a Lands. The Nisga’a Nation will therefore own carbon credits generated by afforestation or avoided deforestation projects that it implements on Nisga’a Lands.

  1. Asserted Aboriginal interests in land

The situation is not as clear, however, in the case of asserted but not yet recognized claims to Aboriginal title. Such claims by their very nature call into question legal ownership of the land, and correspondingly, who is entitled to the bundle of rights attached to that legal ownership. Aboriginal rights, including Aboriginal title, predate Crown sovereignty in Canada and therefore act as a burden on the Crown’s underlying title. Some commentators suggest that the content of the Crown or a private land owner’s title is whatever interest remains after the Aboriginal right(s) that burdens the land has been subtracted. Complex disputes about ownership of carbon credits may therefore arise when project proponents implement carbon offset projects on lands subject to Aboriginal land claims.

The outcome of such disputes cannot be predicted and, in any event, will normally take many years – even decades – to be determined. Nevertheless. in many cases Aboriginal communities may be entitled to participate in land use management decisions and to share in the economic benefits generated by carbon offset projects undertaken on claimed land.

These rights flow from the Crown’s obligation to consult, and potentially accommodate, Aboriginal peoples.

In the leading case of Haida Nation v. British Columbia (Minister of Forests), the Supreme Court of Canada recognized that the Crown (i.e. the government – both federal and provincial) has a constitutional duty to consult with Aboriginal communities where claimed Aboriginal rights or treaty rights may be affected by Crown decisions. While the Crown ultimately remains legally responsible for fulfilling this duty, it may (and often does) delegate procedural aspects of consultation to project proponents.

The duty arises when the Crown “has knowledge, real or constructive, of the potential existence of the Aboriginal right or title and contemplates conduct that might adversely affect it.”

In the context of carbon offset projects that generate carbon credits for provincial or federal cap-and-trade systems, the Crown’s duty to consult Aboriginal people will likely be engaged when the regulatory body contemplates approving and registering a project that will be implemented on claimed land in its carbon-offset program. It may also be engaged when the provincial or federal decision-maker contemplates issuing carbon credits for emissions reductions achieved by the project.

For both mandatory and voluntary markets, the duty to consult, and where appropriate, accommodate Aboriginal peoples may arise in the early planning and development stages for carbon offset projects on Crown land subject to Aboriginal claims.

The content of the duty will be proportional to a preliminary assessment of the strength of the case supporting the existence of the right or title, and to the seriousness of the potentially adverse effect on the right or title claimed. The content of the duty to consult can best be understood as a spectrum of obligations that vary with the circumstances. At one end of the spectrum, the Crown’s duty may be limited to giving notice, disclosing information, and discussing any issues raised in response to the notice. At the other end of the spectrum, deep consultation aimed at finding a satisfactory interim solution will be required.

Crown consultation may give rise to a requirement to accommodate Aboriginal claimants by minimizing infringement of the asserted right(s) when a strong prima facie case exists for the claim, and the consequences of the government’s proposed decision may adversely affect Aboriginal claimants in a significant way.

At a minimum, therefore, the Crown must consult with Aboriginal claimants about carbon offset projects on Crown land or for projects that will generate carbon credits for provincially or federally regulated cap-and-trade systems when the projects are situate on land claimed by Aboriginal peoples. When a strong prima facie case exists for the asserted Aboriginal claims, the Crown will likely need to meaningfully accommodate Aboriginal claimants. In so doing, the Crown will need to reasonably balance Aboriginal concerns about the potential impact of the decision on the right or title with other societal interests. The outcome of this balancing process may require the Crown to involve Aboriginal communities in decision-making processes related to the project, and to provide Aboriginal claimants with fair economic compensation for the carbon credits that are generated on the claimed land.

The Crown, and not the project proponent, will be liable for failing to accommodate Aboriginal claimants when the circumstances require. If the Crown fails to satisfy its duty to consult, and where appropriate, to accommodate Aboriginal rights claimants, a court of competent jurisdiction may set aside the decision that was made in breach of the duty. This may involve, in a regulated system, quashing approval for the carbon offset project, or quashing the decision to issue carbon credits to the project proponent. The case law suggests, however, that courts may be reluctant to grant this remedy when quashing the regulatory decision prejudices the rights of private parties. The court may make an order suspending the implementation of the Crown’s decision or approval to allow for proper consultation to occur. The Court may also issue a declaration the Crown has breached its duty to consult, or provide other declaratory relief.

It will therefore be in the shared interests of project proponents, Aboriginal communities, and the Crown to contemplate entering into Impact and Benefit Agreements or other such agreements which clearly define decision-making rights and responsibilities, ownership of carbon credits, and liability for those credits prior to undertaking carbon offset projects on land subject to Aboriginal claims. Such agreements should clarify how the Crown or its delegate will consult with, and where appropriate, accommodate, Aboriginal rights claimants.

  1. Aboriginal and treaty rights in traditional territories on which carbon offset projects are implemented

A more controversial issue is whether Aboriginal communities, through Aboriginal and treaty rights, may claim ownership of carbon credits generated on traditional territories that are not reserves, lands subject to settled land claim agreements, or lands held pursuant to Aboriginal title.

Aboriginal communities may face certain barriers to claiming ownership of carbon offset credits generated on traditional territory through Aboriginal rights. To qualify as an Aboriginal right, an activity “must be an element of a practice, custom or tradition integral to the distinctive culture of the aboriginal group claiming the right” that existed prior to European contact.

The key issues will therefore be how the right being claimed is characterized and ultimately, whether a court will accept a broadly characterized right that captures the benefits of carbon offset credits generated on traditional land.

It is unlikely that the activity of generating and selling carbon offset credits itself can be qualified as the modern evolution of an integral pre-contact Aboriginal practice based on the current jurisprudence on Aboriginal rights.

Aboriginal communities may, however, be able to assert that ownership of, or a right to some of the benefits generated by, carbon offset credits is ancillary to a right to environmental stewardship and management. The key here is to establish that current environmental management practices are rooted in pre-contact practices. Aboriginal communities that exercise such a right may then be able to claim the benefits of carbon offset credits that are generated by such environmental management practices.

From a political perspective, the carbon “crop” arguably represents an unforeseen windfall for all involved. Where Aboriginal groups have an interest, whatever its nature, it can reasonably be argued that this should entitle them, at minimum, to a share of the windfall. Non-Aboriginal society largely profited from the industrialization that is the primary cause of climate change; it would be ironic if non-Aboriginal society reaped the financial benefits of trying to reverse climate change to the exclusion of Aboriginal communities.

Treaty rights also provide a means for Aboriginal communities to claim ownership of carbon offset credits generated on traditional territories. In Marshall v. Canada, the Supreme Court laid down the guiding principles of treaty interpretation, which include the requirement that Canadian courts must “update treaty rights to provide for their modern exercise”. Determining the modern content of treaty rights consists of establishing which practices are reasonably incidental to the core treaty right in its modern context. This involves distilling the core of the treaty right to see how it might be developed in the modern context.

In R. v. Beattie, the Federal Court provided an expansive reading of the right to agricultural assistance in Treaty 11, holding that the core of the treaty right is the “development of a capacity for self-sufficiency based on the use of the land base”. The Court held that the modern form of this right could involve expanding the definition of agriculture “to include other renewable resources whose cultivation could be the basis for self-sufficiency”.

This interpretation suggests that treaty rights to hunt, fish, and to receive agricultural assistance may merely be species of a core right to self-sufficiency based on the sustainable use of treaty lands. This modern understanding of treaty rights reflects the historical context and purpose of such treaties: to ensure peaceful relations between nations partly founded on the strategy of fostering economic self-sufficiency of Aboriginal communities.

Using treaty lands to generate and sell carbon offset credits may therefore potentially qualify as an analogous species of activity that makes up the modern treaty right to self-sufficiency based on the sustainable use of treaty land.

Alternatively, sustainable forest management and conservation practices may be incidental to an aboriginal or treaty right to hunt. Aboriginal communities could assert ownership of, or a right to some of the benefits derived from, carbon offset credits generated by such practices in the manner described above.

  1. Land claim negotiations and project development

Delineating ownership of carbon offset credits generated on lands subject to Aboriginal claims must now be at the forefront of negotiators’ minds when they sit down to negotiate Aboriginal land claims. Aboriginal communities currently making or negotiating claims should now systematically seek to reserve the rights to carbon credits generated on claimed land as part of the land claim negotiations process.

Similarly, Aboriginal communities should also clearly define, and seek to retain, the right to carbon credits generated by projects implemented by others on Aboriginal lands. This process will necessarily involve assessing which entities may also have a claim to some or all of the benefits of such carbon offset projects.

For example, afforestation projects implemented in traditional territories located on Crown land will give rise to legal uncertainties over who is entitled to the carbon offset credits generated by such projects. Aboriginal communities will likely need to consult and work jointly with others who may hold title or other rights to these lands. Those entities may include the provincial and federal governments, as well as natural resource companies (forestry, mining) that have licences or other interests in traditional territories.

Disputes over ownership of carbon credits generated by offset projects involving forest management practices may arise when they are implemented by forestry or other companies that have a licence or other interest on Aboriginal land or on traditional lands on which Aboriginal communities have an Aboriginal or treaty right to engage in environmental stewardship and management. It will therefore be important for Aboriginal communities and project proponents to identify and delineate who will retain the rights to carbon credits in those circumstances.

  1. Conclusion

Carbon offset projects represent an important means by which Aboriginal communities can engage in self-sufficient sustainable development. The sale of carbon offset credits generated on Aboriginal lands can potentially provide Aboriginal communities with an important source of revenue and a means of economic development that protects and enhances the natural environment of their traditional territories.

It can also potentially provide Canadian industries, such as oil sands operators, with an ethical means to meet more stringent carbon emissions reduction targets that will likely be forthcoming in the near future.

Carbon offset projects implemented in Canada by Aboriginal communities on their traditional territories therefore have the potential to serve as a model for sustainable development both here and abroad.