VOL 29 No. 4
Ecuador's Oil Change: An Exporter's Historic Proposal
by Kevin Koenig
Fueling Another Debt Crisis
by Neil Watkins
The Best Congress Oil Could Buy
by Steve Kretzmann
A Call for Global Economic and Energy Transitions
Sin and Society II
by Edward Alsworth Ross
Bolivia Asserts Oil Sovereignty
an interview with Carlos Villegas
Causes of Soaring Oil Prices
interviews with oil industry analysts
Can Big Oil Adapt to Climate Change?
interviews with oil industry analysts
Behind the Lines
Independence from Oil
CAFTA and the Politics of Fear - Whistleblowers Betrayed
The Lawrence Summers Memorial Award
Greed At a Glance
Names In the News
Ecuador’s Oil Change
By Kevin Koenig
An Exporter’s Historic Proposal
Quito, Ecuador — On a clear day, high in this Andean capital city, the nearby volcanoes glisten in the distance under the equatorial sun. Of the five visible volcanoes, the most startling is Cotopaxi — both for its proximity and for its remarkably receding glacier. Cotopaxi has lost 30 percent of its glacier over the last several years and people are taking notice.
Yasuní National Park
The first pronounced impacts of climate change in Ecuador are just one of a multitude of reasons why this small country, roughly the size of Colorado, is positioning itself as a new environmental leader for a world confronting climate change. Noted for its political upheavals and popular protest, Ecuador is now raising eyebrows in the international policy arena with a bold proposal aimed at achieving the seemingly impossible: leaving its oil in the ground.
For more than three decades, oil has been a mainstay of the Ecuadorian economy. It accounted for one third of the state’s revenues between 1972 and 2006 and, by 2006, 60 percent of exports. Today, Ecuador is South America’s second largest oil exporter to the United States and on the verge of rejoining OPEC after a 15-year absence. With oil revenue accounting for more than half of its national budget, past governments salivated over the estimated 1 billion barrels of heavy crude that lie beneath the country’s Amazon region bordering Peru.
But in June 2007, the Ecuadorian government launched perhaps its most pioneering proposal. President Rafael Correa, a U.S.-trained economist, announced the country would be willing to forgo the development of its largest oil reserve, the Ishpingo Tambococha Tiputini (ITT) field, and forfeit estimated revenues of $9.2 billion, if the international community would match its financial sacrifice through a variety of mechanisms including debt cancellation, bilateral aid and direct financial commitments. At least $350 million in commitments is sought by June 2008 to gauge whether there is enough international support to make the proposal viable.
But why would a net oil exporter forgo development of its largest reserve and such substantial revenues?
The ITT oil bloc lies beneath the Amazon basin’s most biodiverse area of rainforest, the Yasuní National Park. Dubbed the “cradle of the Amazon,” the park is a United Nations Biosphere Reserve. It is also home to some of the planet’s last remaining uncontacted indigenous peoples, whose cultural survival depends on protecting the park.
Toward a Green Ecuador
Established in 1979, Yasuní is comprised of more than 2.4 million acres of pristine primary tropical rainforest and boasts the highest concentration of floral and faunal species anywhere in the world. The park contains some 4,000 plant species, 173 species of mammals and 610 bird species, and almost as many tree species in 2.5 acres as found in all of North America. Yasuní also contains more than 100,000 insect species per hectare — the highest level of insect diversity in the world.
Much of this stunning biodiversity is due to unique geographic and climate conditions during the Pleistocene era, which rendered the area now known as Yasuní with warmer temperatures than surrounding regions. Its moderate temperatures allowed plant and animal life to flourish, and Yasuní became a hotspot of biodiversity and animal migration, which greatly contributed to the propagation of the rest of the Amazon Basin. Yasuní is one of the few places on the planet distinguished as a Pleistocene Refuge Area — an area in which numerous species survived extinction during periods of dramatic climate change.
In 1999, the Ecuadorian government designated 1.8 million acres of Yasuní National Park as a “No Go Zone,” prohibiting any type of resource extraction in perpetuity. The reserve is home to the Tagaeri and Taromenani, two nomadic clans of uncontacted Huaorani indigenous people living in voluntary isolation.
It is virtually inconceivable that the rights of the park’s indigenous inhabitants could be upheld, or Yasuní’s irreplaceable biodiversity preserved, if the government authorized oil drilling and exploitation.
Keeping the oil in the ground also addresses two causes of global climate change simultaneously: tropical deforestation and oil consumption. Given that between one fifth and one quarter of all carbon emissions come from deforestation, an issue not adequately addressed in the Kyoto Protocol global warming agreement, the Yasuní-ITT proposal is very significant in climate change terms. It would prevent an estimated 436 million tons of carbon emissions — equivalent to taking more than 46 million cars off the road — establish a vital global precedent recognizing the role of tropical rainforests in naturally sequestering vast quantities of carbon, and regulate regional and global weather patterns.
“The road to avoiding climate chaos requires valuing ecosystem services and requires leaving fossil fuels underground,” says David Batker, director of the Tacoma, Washington-based Earth Economics, an organization dedicated to using science to promote healthy ecosystems. “Ecuador’s proposal represents bold global leadership for citizens of Ecuador and the planet.”
Leaving Yasuní’s oil in the ground is among the most significant measures yet proposed, by a developing nation or otherwise, to tackle climate change. But in the eyes of the Ecuadorian government, providing a concrete solution toward reversing climate change is just one of the many benefits.
The other major goal of the Yasuní proposal is to create a new vision for development, establishing a path toward a post-petroleum economy in Ecuador. With matching compensation funds from the international community, the government of Ecuador aims to establish the Yasuní-ITT Environmental Trust Fund, which will help the country finance environmental initiatives within its National Development Program. These include: the development of alternatives to oil extraction; energy efficiency; promotion of green technologies such as solar, wind and geothermal power; a broad social program to include construction of green homes and schools; energy efficient public transportation; investment in, and development of, ecotourism; and a comprehensive environmental remediation program to address existing contamination that will include environmental health and educational training programs.
“Ecuador doesn’t want to replicate a model of development based on fossil fuels,” explains Lucia Gallardo, deputy environmental advisor in Ecuador’s Ministry of Foreign Relations. “We want to demonstrate that a small country, with a marginal contribution to the climate change problem, can avoid the releasing of greenhouse gases and at the same time lay the foundation for a more just and equal economy.”
“We seek to move beyond a reliance on oil and toward an equitable strategy for true energy independence that prioritizes poverty eradication, renewable energy, clean transportation systems, and sustainable agriculture and tourism,” says Gallardo. “The old model of attempting to drill our way to prosperity has failed.”
Debt and Destruction
Like many other oil-dependent countries, Ecuador has not reaped the much-promised benefits of oil “development.” Although oil revenues were significant in facilitating national development between 1972 and 1982, the panorama has changed in the last 25 years. Today, Ecuador produces more than double the amount of crude it did during the 1970s boom years. However, the average annual per capita income increase between 1981 and 2006 was a mere 0.6 percent, and poverty levels remained constant between 1995 and 2006. Over the last quarter century, national indicators of poverty rose while health indicators declined.
To the dismay of foreign companies, President Correa recently changed the terms of oil contracts, allocating to the state 99 percent of the extra revenues above a benchmark price from windfall oil profits. However, the country has suffered for decades under a debilitating cycle of debt and dependency. At the beginning of the country’s oil boom, foreign debt hovered around $213 million. Today, it is roughly $10.6 billion.
Meanwhile, 40-plus years of oil extraction in Ecuador’s Amazon region has wrought environmental havoc and left indigenous cultures and campesino (farming) communities reeling. The most infamous example is Texaco’s toxic legacy. Texaco (now merged into Chevron) drilled in the Ecuadorian Amazon from the 1960s through the 1990s, using sub-standard technology and allegedly dumping 18 billion gallons of toxic byproducts directly into the rainforest, contaminating rivers and streams on which local people still depend [See “Texaco’s Toxic Legacy,” Multinational Monitor, November 1993]. As a consequence, one indigenous people, the Tetetes, have ceased to exist. Cancers and other serious illnesses now plague communities in the area, leaving several other indigenous groups fighting for their survival. A class-action lawsuit against Chevron in Ecuador is due to conclude in 2008, with thousands of plaintiffs demanding an environmental remediation estimated at upward of $6 billion.
Most oil majors have now left Ecuador — a combined result of indigenous resistance, targeted corporate campaigning, a deteriorating foreign investment climate, and less than ideal reserve quantity and quality — only to be replaced by an influx of independent and state-run companies, most notably Petrobras (Brazil) and Andes Petroleum (a consortium of China’s National Petroleum Company, China Petrochemical Corporation and their subsidiary PetroOriental). These newcomers are less concerned about their reputations and are less susceptible to indigenous and environmentalist campaign pressure. Petrobras and Andes Petroleum have both expressed interest in acquiring ITT drilling rights should they be offered.
Petrobras currently holds oil-drilling rights to Block 31, adjacent to ITT, and also located inside Yasuní, but with significantly smaller reserves. The project has been stalled due to national outcry and alleged contractual discrepancies. Although the environmental license has been issued, the block is not without controversy and faces several legal and financial obstacles before moving forward. According to oil experts, oil extraction in Block 31 is not economically feasible without also accessing the lucrative and sizable reserves of the ITT, as infrastructure and operational investment would make it cost prohibitive.
The Concept of Ecological Debt
Climate change has no borders and represents perhaps the greatest common threat ever posed to humanity. But it reflects a grave asymmetry in responsibility and burden. The Yasuní proposal is based on the concept of ecological debt and the principle of shared responsibility for climate change between developed and developing nations, as laid out in the 1994 United Nations Framework Convention on Climate Change.
The responsibility for reduction of greenhouse gases is shared but disproportionate. Industrialized countries, such as the United States, those in Western Europe and Japan, are responsible for the majority of greenhouse gases emitted, and the vast majority that have been emitted over time. Unfortunately, those who already and in the future will suffer the largest share of the impact of climate change are developing countries — even though these impoverished societies have barely contributed to the build-up of global warming gases. This discrepancy in carbon emissions of the North is considered by many developing countries as an ecological debt, owed to a majority of the global population by a minority of industrialized nations for their continued level of exorbitant resource consumption.
If the worst climate change disasters are to be averted, all countries will have to reorganize their energy sectors; and, even if the worst is averted, all countries — and especially developing countries that by dint of geography will be worst affected — will be forced to adapt to changing climate.
The concept of ecological debt suggests an obligation by industrialized countries to compensate developing countries both for efforts to stem climate change and to adapt to its effects. Thus, Ecuador should be compensated for its lost annual expected revenue from production of the ITT oil fields — on the order of $350 million. This is the income the country proposes to forego to help address a problem of the rich countries’ making.
“The idea that countries in the Global South would have to go further into debt to adapt to climate change — while bearing the overwhelming burden of its impacts — yet we contribute so significantly less to the problem than the Global North, is unacceptable,” says Esperanza Martinez of the Oilwatch Network, an international network of human rights, environmental and indigenous organizations that monitor the oil industry. Martinez and others are particularly opposed to World Bank lending schemes to support “adaptation.”
Speaking at the UN Dialogue on Climate Change in September 2007, President Correa said, “The measures of adaptation to climate change represent a heavy burden on the budgets of developing countries that could ascend to $40 billion, according to the studies of the World Bank. We do not need loans to adapt. That would increase the burden of our external debt. What we need is compensation for the damages caused by the out-of-proportion amount of historical and current emissions of greenhouse gases by industrialized countries. In other words, the inequality in the origin and the distribution of the effects of the global warming are not unimportant in the climate change debate.”
“Nevertheless,” he added, “Ecuador is prepared to make enormous sacrifices, with justice and creativity, to fight global warming.”
Energy to Keep Oil In the Ground
To date, the Yasuní-ITT proposal has generated significant interest from governments, international organizations and individuals. Concrete financial commitments from the Spanish, Norwegian and Belgian governments, as well as the United Nations Development Program, have helped jumpstart the proposal. An expanding group of nongovernmental organizations has committed funding and technical assistance to the Ecuadorian government in its exploration of the viable economic options to acquire compensation for keeping the oil in the ground, and in seeking private and public sector financial support through the launching of a U.S. awareness and fundraising campaign. The proposal was selected for recognition in September 2007 by the Clinton Global Initiative, started by President Bill Clinton to implement innovative solutions to the world’s most pressing challenges.
From Kyoto to Quito
In Ecuador, the environmental advocacy group Acción Ecológica has led a national campaign that has created a true civil society mandate to keeping Yasuní off limits to oil drilling. Through road shows, concerts, conferences — and the creation of a “human billboard” inside Yasuní National Park that featured Ecuador’s Vice President, Huaorani indigenous leaders and local supporters physically spelling out “Vive Yasuní” and “Live Yasuní” — Acción has generated widespread public media attention, and collected tens of thousands of signatures and offers of five dollars for each barrel of ITT to remain permanently in the ground.
Although President Correa is poised to be Ecuador’s first president in a decade to serve his full term, political turnover is the norm here, potentially leaving Yasuní’s provisions vulnerable under a regime change. However, Alberto Acosta, former Minister of Energy and Mines and the initial architect of the proposal, is set to lead the newly elected Constituent Assembly charged with drafting a new constitution, where protections for the proposal will be included. Acosta received the most votes out of more than 600 candidates in the country’s September constituent assembly election.
With carbon emissions, global temperatures and oil prices all at record highs, proponents say there has never been a more important time for a proposal like Yasuní-ITT. To date, existing global initiatives have failed to spur significant measures and commitments to mitigate climate change.
Ecuador is looking beyond the Kyoto Protocol, which requires ratifying countries to monitor or reduce greenhouse gas emissions. Ecuador is seeking international agreements that include commitments from industrialized nations to reduce global greenhouse gas emissions while financing sustainable national development policies and measures in the developing world, that value avoided deforestation and avoided carbon emissions, and recognize ecological debt.
“You can’t try to fit this proposal into the limited parameters of Kyoto,” says the Ministry of Foreign Relations’ Gallardo. “The Yasuní initiative breaks the mold and Ecuador is ready to lead a movement beyond Kyoto based on justice and innovation, that truly addresses the responsibility and needs of the Global South in addressing climate change while creating post-fossil fuel economies.”
“We hope the world joins us in this landmark proposal,” Gallardo says, “and that industrialized countries who share a greater burden of responsibility step up and take on greater commitments. This proposal is truly is an opportunity for everyone.”
For Ecuador’s plan to succeed, the international community will need to respond to the call in a significant way. With June 2008 in the not so distant future, a substantial down payment is needed to keep the ITT oil under Yasuní in the ground.
Will the world respond?
Anyone watching the shrinking glacier atop the Cotopaxi volcano cannot help but conclude: It better. And fast.
Kevin Koenig is the Ecuador program coordinator for Amazon Watch.
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