Ecuador wants cash for not producing oil

December 11, 2009 | 00:00

Ecuador wants cash for not producing oil

The government of Ecuador is trying to win over wealthy  nations  for a remarkable environmental project. In exchange for about $4.5 billion the country is prepared to give up drilling for oil in an ecologically vulnerable region. Ecuador says that implementing the proposal would safeguard the world against an  emission of 410 million tons of CO2. Never before has a country offered to keep its oil reserves untapped and prevent the emission of CO2 in exchange for money.

The region in question is the protected Yasuni park, part of the Amazon forest in eastern Ecuador. Populated by only a few hundred isolated indians, Yasuni boasts an extraordinarily rich biodiversity. Oil has been discovered in a section of the park, named Ishipingo -Tambococha-Tiputini  (ITT). Here beneath the surface is a supply of some 850 million barrels, equal to 20% of Ecuador’s proven oil reserves.

Keeping the oil underground is the idea of Ecuador’s radical left-wing ecological movement, which is fighting against environmental pollution by the oil industry in the Amazon region. Popular left-wing politician Alberto Acosta, who became minister of Energy and Mines in 2007, supports the plan.  As a consequence Acosta clashed with Petroecuador, Ecuador’s state oil company, which behind his back had entered into negotiations about ITT concessions with, among others, the Chinese oil company Sinopec and the Venezuelan state oil company PDVSA.

Initially Acosta received  little support for his plan from the Ecuadorian government. ‘President Correa was interested in the idea but thought it unworkable’, Acosta says over the telephone. Correa wanted to use the revenues from oil production to finance his populist policies. He called the moratorium ‘infantile’ and threatened  to take measures against the environmental movement and indian groups. Acosta thereupon resigned as minister.  But the social scientist, with a network of contacts in Germany, has made a comeback as chairman of the powerful Constituent Assembly. This Assembly drafted a new constitution in 2008 that forbids oil exploitation in the Yasuni park unless it is imperative to national interests. Correa then agreed to an oil exploitation moratorium in the ITT area on condition that the government received compensation.

This turnaround was made possible in part by the intervention of Roque Sevilla, entrepreneur and ex-mayor of Quito. Sevilla is director-owner of the oldest and largest tour operator in Ecuador. He succeeded in persuading Correa to reconsider. ‘President Correa had his doubts but changed his mind when we stripped the project of its romantic aura and demonstrated that international financial support in exchange for a moratorium on oil exploitation was possible’, says Sevilla speaking from Quito.

The project now resides under Ecuador’s Ministry of Foreign Affairs and the Ministry of the Environment. EER asked the Minister of Foreign Affairs Fander Falconí during an interview in Quito, why the world would compensate Ecuador for not producing oil in a national park when its own constitution prohibits this. ‘Ecuador is a developing country, we need our natural resources in order to grow and reduce poverty’, says Falconí.  He holds office on the fifth floor of the Ministry where elevators do not work for 6 hours a day, due to a national shortage of electricity. ‘The value of the ITT reserves are now estimated between $6 and $7 billion. You can imagine what Ecuador could do with these resources in terms of education, health care and infrastructure.’

Last year the Yasuni/ITT plan received support from the German parliament, which made available €300,000 for a financial plan that was presented in May of this year. The plan foresees in the sale of Guarantee Certificates to governments and private individuals, which should net a maximum of $7 billion. The idea is to put the accumulated capital in a fund to be administered by the UN. The Ecuadorian government wants to receive a minimum of $350 million per year out of this fund over a period of 13 years, the same time it would take to pump up the ITT reserves.  In that case Ecuador would receive $4.55 billion to leave the oil untouched. Ecuador promises to invest the money in combating poverty, environmental preservation and renewable energy. ‘This is an initiative without precedent’ says Falconí.  ‘It is innovative in terms of conservation and goes beyond Kyoto in terms of the reduction of CO2 emissions.’

According to Sevilla, international reactions to the plan are positive.  ‘The German Ministry for Development Aid is debating an annual contribution of between €30 and  €50 million for a period of 13 years.  We are currently negotiating the extent of Spanish backing for the project. The English government might be willing to lend its support in the form of debt remission.  Italy too, is considering debt remission as a way of contributing.’

Banker Pavan Sukhdev, outsourced by Deutsche Bank to the Environment Programme of the United Nations (UNEP), calls the Yasuni /ITT initiative ‘very interesting and important’.  At UNEP, Sukhdev heads the Economics of Ecosystems and Biodiversity Study (TEEB), the Green Economy Report and the Green Jobs Report. According to Sukhdev, Ecuador’s initiative fits in with increasing international  awareness for what is known as green carbon, the ability of forests to store CO2. Experts think that from

Roque Sevilla, entrepreneur and ex-mayor of Quito: ‘56% of the population want the oil to stay underground’

 

the perspective of CO2 control, there should be a price tag on deforestation and damage to biodiversity and ecosystems. This is exactly what the government of Ecuador is now doing. ‘Spotlighting Yasuni/ITT as a test case is very relevant’, says Sukhdev. ‘It deserves international support.’

However, according to this green banker, the price tag will still need some negotiating. ‘If they receive €7 billion, nobody will be more pleased than me, because it would mean that the carbon market works. I would also be very pleased for my friends in Ecuador, but I must warn them. Don’t be too optimistic. If Ecuador decides not to excavate its oil reserves, it doesn’t mean that the same quantity of oil won’t be additionally won elsewhere. Part of the profit for not exploiting the Yasuni/ITT oil field will leak away. That must be deducted, a discount that will need to be discussed.’

The question is, what guarantees are there that Ecuador will keep its side of the bargain and leave the oil reserves untapped. ‘Trust is our biggest challenge’, admits Sevilla. But he is convinced that in practice guarantees do exist. ‘Firstly, the cancellation of the fund’s annual contributions if a future government still decides to exploit the oil. Secondly, the threat of political upheaval. The people of Ecuador are very environmentally conscious, 56% of the population want the oil to stay underground.’

Loading comments...
related items