Corporations fight over carbon credit cash before Alaska high court

(CN) — Alaska's Supreme Court wrestled with a question Wednesday that didn't exist when Congress settled Native land claims more than 50 years ago: Should profits from carbon credit sales be treated the same as profits from timber sales?

Can corporations profit from promising not to cut down trees the same way they profit from cutting them down?

The answer could determine how hundreds of millions of dollars flow among Alaska's 12 regional Native corporations and reshape how they monetize vast timber holdings.

It is currently unclear whether Sealaska Corporation, Chugach Alaska Corporation and Ahtna Incorporated must share more than $100 million in carbon credit revenue with other regional corporations under a 1982 settlement agreement that ended a decade of brutal litigation over resource sharing.

The dispute reaches back to 1971, when the Alaska Native Claims Settlement Act (ANCSA) divided Native lands among regional and village corporations. Some got forests rich with Sitka spruce. Others got barren tundra. In order to smooth out the inequities, Congress mandated that corporations profiting from timber and minerals share 70% of those revenues.

But what happens when a corporation gets paid not to harvest? According to attorney Matthew Findley, who represents Calista Corporation, the answer is that such payments are no different in substance from compensation to extract resources.

“You can take money to cut your trees. You can take money not to cut the trees,” Findley said. “What else was California paying for, if not for the agreement not to cut the trees?”

Under California’s carbon market program, the three defendant corporations agreed to leave certain forests untouched for 100 years in exchange for carbon credits that companies can purchase to offset their emissions. Sealaska publicly acknowledged that they received more than $100 million, while the other two corporations likely earned similar amounts. 

But they refused to share it.

An arbitration panel unanimously ruled that the corporations were paid to conserve the land, not to sell timber. Since no property interests were transferred, the panel found the payments did not require revenue sharing.

“If revenues from cutting down your timber are shareable, why wouldn't similar revenues from not cutting it down be shareable?” Chief Justice Susan Carney asked. 

Attorney Jennifer Coughlin, representing Chugach, argued that revenue sharing is only required when ownership of a natural resource is transferred. She said carbon credits don’t meet that standard because they don’t convey ownership of the timber itself.

"We didn't create this contract. The state of California created carbon offset credits. We simply participated in this program," Coughlin said.

Justice Aimee Oravec appeared skeptical. Looking years into the future, she painted a troubling picture: corporations earning credits for leaving oil in the ground, gas unexplored, minerals unmined. Under the arbitration panel's logic, none of it would be shareable.

“There’s a huge advantage to each individual ANCSA corporation, a financial advantage, to not develop because they get 100% of those revenues,” Oravec said.

The justices also questioned whether overturning the arbitration award could invite a wave of future challenges, noting that Alaska law places a strong emphasis on the finality of arbitration decisions.

Justice Jude Pate pressed Findley on the implications: "Where are the guardrails left to protect the integrity of arbitration? If you have a disagreement over distribution, it automatically goes to the court if there's a dispute?"

Findley said he understood the court’s concerns but argued the case warranted judicial intervention. 

"This is a rare arbitral award that must be vacated," he said. "You have parties contracting amongst themselves to deprive third parties of revenue that Congress promised them."

Those third parties — Alaska's village corporations — made their own appearance before the justices, represented by attorney Samuel Fortier. The corporations seek to intervene in the case, arguing that while they weren't parties to the 1982 settlement agreement, they have statutory rights to 50% of whatever flows to their regional corporations.

"When you arbitrate third party rights, that's exactly where we're at today," Fortier told the justices. "Our rights are burdened. The regional corporations weren't authorized to arbitrate our rights."

Joshua Selig, representing Sealaska, pushed back.

"It would be completely unworkable," he said. 

Justice Dario Borghesan asked whether the appellants had demonstrated the clear statutory violation required by Alaska’s public policy exception. The rule allows courts to overturn arbitration awards only in rare cases and demands a well-defined, explicit violation.

"That is a very clear, unambiguous statement," Findley said. "If revenue is derived from the resource, it is shareable."

Coughlin said that even if an arbitration panel misinterprets a statute, that does not automatically violate public policy. She noted that parties frequently arbitrate questions of law, and a mistaken ruling alone is not enough to invalidate an arbitration award.

Opportunities from carbon markets and conservation programs are still relatively new for Alaska Native corporations, and the outcome of this case could set a precedent for how they monetize land in the future. If the court requires revenue sharing, village corporations could claim a portion of money earned not just from timber, but from leaving forests standing, a source of income that didn’t exist when the 1982 settlement was signed.

The five-justice panel gave no indication of when they might issue a ruling.

Follow @JeremyYurow