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Keep Oil in the Ground: Yasuni in Ecuador

Keep Oil in the Ground: Yasuni in Ecuador Will the declaration of a moratorium on the extraction of oil in Yasuni National Park in Ecuador harm the economy? Or are the benefits greater than the costs?

Keep Oil in the Ground:Yasuni in Ecuador

Will the declaration of a moratorium on the extraction of oil in Yasuni National Park in Ecuador harm the economy? Or are the

benefits greater than the costs?


n July and August of 2007 I was in Ecuador, I talked to some ministers of the government and also talked or rather listened to president Rafael Correa on the proposal to declare a moratorium on the extraction of oil in the Ishpingo-Tambochocha Tiputini (ITT) field. This is an area of about 200,000 hectares in the Yasuni National Park, in the eastern part of Ecuador next to the border with Peru, where indigenous Huaorani (or Waorani) people live, including some small groups without contact with the rest of the population. Alberto Acosta (a former minister of energy and mines), Maria Fernanda Espinosa (the minister of foreign affairs), Fander Falconí (secretary of planning) and also vice-president Lenin Moreno who comes from the Amazon region, have spoken enthusiastically in favour of the proposal. In September 2007, the president of Ecuador, Rafael Correa, who before becoming president in January 2007 was not known as a committed environmentalist, and who is by training a competent develop ment economist has reaffirmed his decision to not pump some 920 million barrels of heavy oil in the ITT field of the National Park of Yasuni in the Amazon. The main motivation behind this proposal is the defence of the culture, livelihood and rights of the indigenous people who live in this patch of the Amazon forest, as well as the preservation of the unique biodiversity there. You cannot put a price on such things (as you cannot put a price on the Niyagiri forest in Orissa). The avoided carbon emissions are an added bonus.

This proposal is no different from campaigns to prevent the extraction of crude in the wildlife refuge of Alaska or to limit the fishing quotas in the Galapagos islands that Darwin visited with the Beagle – the (rational) sacrifice of monetary profit for the greater good of preserving (irreplaceable) natural and cultural heritage.

For Ecuador, leaving oil in the ground represents a large opportunity cost in a financial sense. (One that, some argue, a poor and indebted country such as Ecuador cannot afford to take.) However, there exist convincing economic arguments for an indefinite moratorium on oil extraction in the Yasuni because the real costs of oil extraction (many of them invisible in financial terms), are probably greater than the benefits.

Firstly, ITT oil is a heavy crude, which would be difficult and expensive to extract and pump over the Andes (and produces many barrels of polluted water for each barrel of oil). At the same time, it is worthless on the market than light crude. Secondly, extraction creates local “externalities” including air and water pollution, deforestation and loss of biodiversity, as well as the threat it poses to the sustenance, culture and health of the indigenous Huaorani. Such costs are not easy to translate into money terms but they are very real, and often irreversible. Further, deforestation, an unavoidable byproduct of oil extraction because settlers follow oil, would increase global greenhouse gases. Avoiding deforestation (particularly of prime forests) is one obvious way to fight climate change.

Thirdly, the extracted oil will finally be transformed into carbon dioxide and released into the atmosphere, contributing to global emissions of carbon dioxide, currently growing at a rate of more than 3 per cent annually rather than decreasing, as they should be. Ecuador holds almost no historic responsibility for global climate change and is not forced under international accords such as Kyoto to reduce its output of greenhouse gases. Despite this, the government wants to do its part to reduce carbon emissions and is leading with an initiative from the South. Normally, governments of the South that could take a leading role in climate change debates (such as the government of India) prefer not to talk about it or they go into diversionary tactics such as president Lula’s extravagant claims for sugar cane ethanol as a world substitute for oil. The president of Ecuador (a small country of less than 15 million people, half the size of France, of which one-half is Amazonian territory) will perhaps become a leader of the South in issues of climate change.

Rich countries produce significantly more greenhouse gases per capita than poor countries. This is unjust. In the process they are essentially transferring the costs of climate change to poorer countries and future generations. This is a fact that the industrialised countries ignore at their own peril but it could soon grow into an international relations problem that cannot be ignored. Although Ecuador bears no responsibility for global warming, the president is taking a stand on the issue, saying: we do not want the ecological debt to mount any further. We want to halt the accumulation of the ecological debt.

On July 14, 2007, The Economist magazine reported that the melting of the Andean glaciers will cause problems with the water supply. No one is offering to compensate Ecuador for this impact. No, rather than working towards repaying ecological liabilities, rich countries are offering the poor southern countries “adaptation” loans to deal with climate changerelated risks. Eventually, to repay these loans, countries such as Nigeria, Bolivia and Peru will be forced to export ever more oil and gas to pay down their debt.

South as Leader

The South must become a protagonist and leader in the solution towards climate change, rather than accepting alms or even worse, the “adaptation” loans so generously offered by the North. Climate change is not the struggle of white middle class Northern “postmaterial” environmentalists, it is a practical Southern issue because this is where the immediate impacts will be felt. In this context, keeping the Yasuni oil in the ground indefinitely is a sensible and forward-thinking initiative originating in the South.

In fourth place, in Yasuni or wherever else, extracting and selling petroleum is not a continuous source of income. It is liquidating an inheritance built up over millennia. Extracting the oil means sacrificing future income, especially if one takes into account the fact that in 20 or 30 years the price of oil will rise as we approach the peak of Hubbert’s curve, with

Economic and Political Weekly October 20, 2007 daily extraction reaching some 100 mbd. While oil prices rise, perhaps the externalities will also increase. The value of shrinking biodiversity will rise, as also the urgency of greenhouse gases reduction. There are many uncertainties inherent in calculating costs and benefits in the distant future, so that Ecuador’s decision can only be taken with the short-term costs and benefits of oil exploration in mind. It is, in principle, a decision that is taken for ever.

Compensation for Ecuador

Oil exploitation from Yasuni would yield a positive financial revenue because the externalities are not factored into the accounts. The preservation of Yasuni benefits all of mankind. It is for this reason that Ecuador is asking for compensation. Without considering the local and global externalities, the Ecuadorian state would receive $ 10 or 15 for each barrel. (This is the market price minus the cost of extraction, transport and the profit of the oil company.) In a spirit of cooperation, Ecuador is only asking for $ 5 per barrel. A fund of $ 4.6 billion (920 million barrels at $ 5) would give an annual yield, at 7.5 per cent interest, of $ 350 million annually. This money would either go towards the reduction of Ecuador’s external debt ($10 billion) or towards other initiatives. In exchange, Ecuador prevents the destruction of one of the most important sites of biodiversity in Amazonia, it prevents deforestation, the loss of culture, human lives, and it avoids emissions of some 111 million tonnes of carbon (120 kg for each barrel of oil extracted). This trust fund of $ 4.6 billion will be collected in two or three years, within the mandate of president Rafael Correa. The indefinite moratorium will be assured by a legal agreement declaring the ITTfield intangible for oil exploitation, and by international safeguards.

Assume a donor were to contribute $ 460 million to the fund, he or she would be able to claim 11 million tonnes of carbon emissions avoided, plus a certain amount more for avoided deforestation. The price of a tonne of carbon would be a little over $ 40.

It is easy to argue that Ecuador should extract the oil and sell it to grease the wheels of its economy and the world, and that some future agreement regarding the absorption or mitigation of carbon dioxide produced will later be signed and sort out the problem. But such a perspective ignores the urgency of reducing global emissions now and it also ignores that the main goal of the proposal of leaving ITT undisturbed is the preservation of biodiversity, the forest, the water, culture and life itself. The avoidance of carbon dioxide emissions is an ancillary benefit.

Donations to the trust fund will work towards two ends – to reduce the external debt (which amounts to about $ 10 billion) or to contribute towards the Ecuadorian government’s budget used to protect Yasuni and its indigenous inhabitants. The fund will also go towards socioenvironmental investments in other regions of the country, including support for wind, geothermal and solar energy, new schools, new houses, and new public transportation that is energy efficient, the development of capacities in eco-tourism and other priorities established in Ecuador’s recently established national plan for development.

Since early September, new developments have taken place. On September 24, 2007, president Rafael Correa presented the Yasuni-ITT proposal at a United Nations meeting of world leaders on global climate change. Correa said that Ecuador proposes to leave the nearly one billion barrel ITT oilfield unexploited in order to preserve Yasuni’s astounding biodiversity, ecosystem services, and the cultural integrity of its indigenous inhabitants. Ecuador is proposing to forgo the revenue from oil production because it believes the value of avoiding climate change and deforestation is of greater value to Ecuador and the planet as a whole. He said in his speech that prices are not a good measure of value. Speaking about the proposal, Correa stated, “For the first time in history, an oil producing country – dependent on oil exports for one-third of its budget – proposes to forgo this income for the well-being of humanity... [Ecuador] invites the world to join our effort – through fair compensation – in order to lay the foundations for a more humane and fair civilisation.”

Nevertheless, Correa said, it should be recognised that highly industrialised countries have contributed over half of the atmospheric carbon dioxide emissions to date, and should therefore assume stronger targets for greenhouse gas reductions and greater commitment of support to initiatives that combat additional increases in atmospheric greenhouse gas concentrations. Ecuador, whose historic carbon dioxide emissions amount to less than 0.5 per cent of the existing rise from pre-industrial levels, offers a novel model of avoided emissions, thus voluntarily contributing to global climate change mitigation.

Finally, the proposal from Ecuador’s government has been selected for recognition by the Clinton Global Initiative in New York on September 26, 2007.




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