Brazil takes action against forest carbon deal in the Amazon

Brazil's Attorney General Office has taken legal action against a deal signed between an Irish company and an Amazon indigenous group for the sale of carbon credits from avoided deforestation.

A federal attorney in the Amazon Brazilian state of Rondonia filed a lawsuit, seen by Reuters Point Carbon, on December 11, which seeks to cancel a contract signed by Celestial Green Ventures LLC and the Awo Xo Hwara indigenous community.

As part of the deal, the Irish company agreed to pay the local group $13 million over 30 years for the rights to explore carbon credits in an area of 260,000 hectares of rainforest.

"It is a new, dangerous and informal carbon credits market, fully speculative, lacking previously stipulated rules," said federal attorney Oberdan Rabelo de Santana in his request for an injunction that would make the deal null.

The suit highlights risks present in this promising but still legally-fragile forest carbon market.

According to the World Bank, Brazil has 58 percent of the global potential to produce carbon credits by Reducing Emissions from Deforestation and Degradation (REDD).

And although there is still no legal framework in the country for such projects, several companies have clinched deals recently to explore that potential, many times with indigenous groups, which caught Brasilia's attention.

LAND OWNERSHIP

Brazil's Attorney General Office had given indications earlier this year that contracts between foreign companies and local indigenous communities would run the risk of being scraped.

According to Brazilian law, indigenous land belongs to the state, although their permanent use was transferred to the communities, so the nation should be a part of any agreements.

But this is the first time Brazil has actually sued entities involved in these types of deals.

"The state has the land ownership and seems that people involved in this contract ignored this aspect," says the suit, which also criticized the possibility of the Irish company exploring the local biodiversity.

On Thursday, Celestial said it would temporarily suspend all of its agreements with indigenous tribal communities until it had greater clarity on the concerns of the Brazilian authorities.

Celestial CEO Ciaran Kelly said he had not yet received any official correspondence regarding the agreement with Awo Xo Hwara, but said concerns about the agreements had come to the company's attention.

The company believes that REDD projects can bring many benefits to indigenous communities, he said.

Last month, another tribe in the Amazon decided to scrap a deal it had signed with the Irish company.

At that time, Kelly said the company had not been officially informed about the desistance, but added he would respect the tribe's decision.

"We believe strongly in the ability and the rights of Indigenous communities to determine their own future and consequently decide what the most suitable path for them to take is," Kelly said in an email to Reuters Point Carbon last month.

Brazil's Attorney General said at least 30 similar contracts in Brazil are under scrutiny.

Emission reductions from deforestation schemes are not eligible to earn credits under the international U.N. framework, and are not allowed in mandatory emissions trading schemes in Europe and New Zealand.

Currently, only Japan and the state of California have said they may accept REDD credits for compliance with their carbon reduction programs.