Arbitration Matters Involving Us Nature-Based Carbon Offset Land-Use Conflicts
I. Conceptual Background: Nature-Based Carbon Offsets and Land-Use Conflicts
Nature-based carbon offsets in the United States typically arise from projects such as:
Forest conservation and improved forest management (IFM)
Reforestation and afforestation
Wetland and grassland restoration
Soil carbon sequestration on agricultural land
These projects rely on long-term land-use commitments to generate tradable carbon credits. Arbitration clauses are common in:
Carbon offset purchase agreements
Landowner–developer project agreements
Conservation easements tied to carbon rights
Registry participation agreements (e.g., verification and permanence obligations)
Land-use conflicts triggering arbitration often involve:
Competing claims over “carbon rights” vs. surface or mineral rights
Early termination of conservation or management commitments
Alleged reversals (fires, logging, development)
Conflicts between local land-use regulation and contractual carbon obligations
Misrepresentation of additionality or permanence
II. Key Legal Issues in Arbitration of Carbon Offset Land-Use Disputes
1. Ownership and Severability of Carbon Rights
Arbitrators must determine whether carbon sequestration benefits are:
Part of the surface estate
Separately severable contractual rights
Encumbered by conservation easements or prior leases
2. Permanence and Long-Term Use Restrictions
Most offset programs require 40–100 year land-use restrictions, raising disputes over:
Breach due to land sale or rezoning
Frustration of purpose
Impossibility or force majeure (wildfires, pests)
3. Federal Arbitration Act (FAA) Preemption
State land-use or environmental public policy arguments frequently collide with the FAA’s strong pro-arbitration mandate.
4. Remedies
Arbitration claims often seek:
Damages for invalidated credits
Indemnification for registry reversals
Specific performance of land-use covenants
Declaratory relief on ownership of carbon attributes
III. Case Laws Commonly Applied in U.S. Carbon Offset Land-Use Arbitrations
1. Preston v. Ferrer, 552 U.S. 346 (2008)
Relevance
This case is relied upon to establish that state regulatory or land-use approval regimes cannot block arbitration where a valid arbitration agreement exists.
Application to Carbon Offset Disputes
Landowners often argue that disputes involving conservation easements or zoning changes must first go through state agencies. Arbitrators cite Preston to affirm that contractual arbitration takes precedence, even when land-use regulation is implicated.
2. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)
Relevance
Confirms that arbitrators have broad authority to award remedies unless expressly limited.
Application
In carbon offset land-use disputes, this case is invoked to justify:
Monetary damages for lost or invalidated carbon credits
Indemnity awards for registry penalties
Allocation of reversal risks between landowners and developers
3. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
Relevance
Distinguishes between “gateway” arbitrability issues (for courts) and procedural or technical issues (for arbitrators).
Application
Used when parties dispute:
Whether registry non-compliance bars arbitration
Whether project verification failures invalidate claims
Arbitrators rely on Howsam to assert jurisdiction over technical carbon-program compliance disputes.
4. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010)
Relevance
Limits arbitrator authority to the parties’ consent.
Application
Carbon offset developers cite this case when resisting:
Class-wide arbitration by multiple landowners
Aggregated claims across multiple parcels
Arbitrators apply Stolt-Nielsen to keep disputes parcel-specific and contract-specific.
5. United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960)
Relevance
Establishes the presumption in favor of arbitrability.
Application
In land-use carbon disputes, parties often argue that:
Conservation easements are “property law” issues, not contractual
Arbitrators rely on Warrior & Gulf to hold that land-use obligations embedded in contracts remain arbitrable, even if they resemble property interests.
6. Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013)
Relevance
Affirms that courts must defer to an arbitrator’s interpretation of a contract, even if arguably incorrect.
Application
In disputes over:
Interpretation of permanence clauses
Scope of land-use restrictions
Carbon reversal liability
This case protects arbitral awards interpreting ambiguous carbon offset agreements.
7. BG Group plc v. Republic of Argentina, 572 U.S. 25 (2014)
(Frequently analogized in U.S. environmental arbitrations)
Relevance
Addresses procedural preconditions to arbitration.
Application
Used when parties dispute whether:
Mediation or registry dispute resolution steps were mandatory
Arbitrators apply BG Group reasoning to hold that procedural conditions are for arbitrators, not courts, even in complex land-use carbon projects.
IV. Emerging Arbitration Trends in U.S. Carbon Offset Land-Use Conflicts
Carbon Rights as Intangible Property
Arbitrators increasingly treat carbon sequestration benefits as contract-defined intangible rights, not traditional real property.
Risk Allocation for Natural Reversals
Wildfire and climate-driven reversals are being allocated based on:
Force majeure clauses
Buffer pool participation
Landowner management obligations
Federal Policy Neutrality
Despite climate policy implications, arbitrators emphasize contractual intent over environmental policy arguments, consistent with FAA jurisprudence.
V. Conclusion
Arbitration has become the dominant dispute resolution mechanism for U.S. nature-based carbon offset land-use conflicts due to:
Long-term contractual commitments
Multi-party project structures
Technical verification and registry regimes
While few reported cases explicitly mention “carbon offsets,” arbitrators consistently rely on established U.S. arbitration jurisprudence—particularly FAA-based Supreme Court decisions—to resolve disputes over land use, permanence, ownership, and reversal liability.
RELATED Blog
comments