ECUADOR: SOME OBSERVATIONS REGARDING THE YASUNÍ – ITT PROPOSAL By Gerard Coffey*

 “the first casualty of this war is, as always, the truth.”
Miguel Ángel Cabodevilla

 

The remarkable Ecuadorian proposal to leave about 900 million barrels of heavy crude in the ground in exchange for international contributions amounting to about half its value, was recently abandoned by President Rafael Correa. The exploitation of the oil fields – located mainly although not entirely inside Yasuní national park, a global biodiversity ‘hotspot’ – has aroused some passionate opposition and a determined defense of the decision by the Ecuadorian government.

1. As some commentators have already pointed out, Yasuní National Park is hardly a pristine area. It has been explored and exploited for decades. Shell oil set up camp there in the 1940s, but abandoned the wells it drilled due to the difficulty of getting the oil to market, and because the crude was heavy: the company was not particularly  interested in heavy crude. The structures Shell left behind can still be seen in the area, together with large pools of oil and/or formation water, abandoned, open to the elements. All testimony to the company’s presence.

The extraction continues. A number of oil companies are presently working in Yasuní, both Multinationals (Repsol , Block 16 , Petroriental block 14 ) and nationals ( Petroamazonas, Block 31).  Timber traffickers are also present in the area, and according to Carlos Andrés Vera’s documentary[1]  are ‘ supported ‘ by some Waorani[2]. At the same time, just across the border in Perú, the French oil company Perenco is in the process of exploiting block 67, which borders the park’s eastern limit.

2. Block 31, where oil companies have been exploring for a number of years, (Petroamazonas took control of the block in 2008 after the Brazilian company Petrobras left) is more of a concern than 43 ( ITT ). The oil fields are more widespread and likely to cause greater impacts than those if ITT (access roads, platforms , pipelines , seismic exploration , etc. . ) An access road has already been built , but the problems presented by Block 31 have not been widely discussed.

The question presented to the Constitutional Court by environmentalists seeking a national referendum on whether to leave oil in the ground does not mention block 31.

3. It seems clear that exploiting the ITT fields cannot be equated with ‘destroying’ Yasuní, as some claim.  It is difficult, although not impossible, to ‘save’ something that is already badly compromised. Claims made by the government side, to the extent that 99.9 % of the park is intact, are also hardly credible. A quick look at a map of Block 31, which occupies a large percentage of the Park, makes it clear that to say so is a distortion of reality.

At the same time, it is farcical to talk about the access paths (several meters wide) that will be opened in block 43 – ITT as being ‘green’. Of course, paths are preferable to the usual access roads, but calling them ‘green’ is absurd. Furthermore, as noted in the Ecuadorian National Assembly ‘ the ‘ecological path ‘ between the Tambacocha and Ishpingo fields would be about 30 km long.

4. Although not exploiting the block 43 – ITT fields may not save Yasuní, leaving the oil in the ground would obviously avoid doing more damage to the area. And avoiding damage is clearly significant as the park is an important center of biodiversity[3]. Extracting oil is always a risk even if the process is well managed. And while leading edge  technology may help, it will not prevent spills – it would be would be amazing if it did – and a spill could easily affect more than the 200 hectares proponents of the government plan always speak about.

5.  The proposal to leave oil in the ground was a good idea[4]. It never had a particularly good chance of succeeding, but it was worth trying. You never know. Life can surprise you. It is true that Rafael Correa was always skeptical of the idea and had to be convinced, although I suspect that if he had been able to get his hands on the US$ 3,600 million in donations (half the calculated value of the oil at 2007 prices) he might well have accepted the money. As they say, a bird in the hand….

But after more than five years it hadn’t worked. There are a number of reasons for the low level of contributions, and not all can be attributed to Rafael Correa and his skepticism. The main explanation for the lack of support by prospective donors, even those sympathetic to the proposal, was the fear that to fund it would open the door to hundreds of similar proposals. And while there is nothing wrong with that from an environmental standpoint, financing a myriad of proposals was not exactly what they had in mind. Despite the flow of fine words, they were afraid of the Yasuní- ITT proposal.

6 . It is worth remembering that the first trust set up to receive donations  was designed, among others, by Yolanda Kakabadse , President of the World Wide Fund for Nature and Trustee of the Ford Foundation, and businessman-environmentalist Roque Sevilla, both well connected in the NGO conservation world. They proposed that the money from the ITT plan be managed by national NGOs, but they almost certainly weren’t thinking of the radical NGOs that first proposed the idea of leaving the oil in the ground. Donor governments, meanwhile, as tends to happen with their international aid agencies, wanted to control the destination of the funds. Telling them to ‘stick their pennies in the ear ‘ was not exactly diplomatic (who expects that of Rafael Correa?) or designed to please potential donors, but it was an expression of sovereignty. The outburst may not have helped, but it seems unlikely that that was why the proposal failed.

One of the most worrying aspects of the Yasuní – ITT proposal was to finance it through the carbon bond market, a mechanism that allows major polluting states to continue emitting carbon dioxide in exchange for financing conservation projects in other parts of the planet. The plan leaves them ‘free’ to continue contributing to climate change, probably the most serious threat to the planet that exists (to say ‘ serious ‘ is to understate the catastrophic danger it represents). According to some experts, Climate Change could even cause large areas of the Amazon to dry up. It was a real contradiction.

7.  Ivonne Baki[5], the chief negotiator, did not represent the best choice to raise funds for the Yasuní-ITT proposal.

I am sure she had fun, and at least raised more than she and her team spent, but she was hardly the best option. Her environmentalism does not go very deep. I say that despite the fact that some of her team supported her because she spoke twenty five languages ​​and was an excellent negotiator: a statement hard to dispute given that she has occupied high level posts in three recent governments of quite different political stripes: those of Jamil Mahuad, Lucio Gutierrez and now Rafael Correa. It is a feat matched by very few.

8. To say that the real problem is capitalism has its merits, but it suffers from level confusion. Capitalism may be destroying the planet, but the problem with the argument is that we have to decide the fate of the Yasuní-ITT proposal now, and while talking about the role of capitalism can help in understanding the essential nature of the problem, it will not help a great deal in making a decision in the immediate present. And I doubt that capitalism will fail before the ITT oil fields give out.

9. Even though the Minister for Strategic Resource, Rafael Póveda, may deny it, the ITT oil fields have always been always considered to be one of the two major possible sources of oil for the proposed Pacific Refinery. Without it – or without crude imported from Venezuela – there would not, it was said, be a great enough volume to justify building it. That Ecuador needs a new refinery has never been a matter of great debate given that importing derivatives such as diesel or lubricating oil is extremely costly for the country. Depending on the quality of the lubricant, 10 or more barrels of crude have to be exported to import one single barrel. Imported diesel is also subsidized in Ecuador at a rate of roughly 2.3 to1.  So it is not difficult to understand the pressure to reduce costs by producing in the country rather than importing. One political drawback is that if the ITT oil is finally processed in the new refinery, to derive any real financial benefit and justify extracting the oil in the first place, any government would have to dramatically reduce or eliminate the internal subsidies on gasoline and diesel etc. It will not be easy.

10 . Not exploiting the ITT fields does not imply en end to ‘extractivism’: i.e. an excessive dependency on the export of unprocessed natural resources. It could be a step in that direction, but with this government that seems unlikely. There are two basic options for reducing dependence on primary resources: reduce the amount of resources exploited, or increase the contribution of the other areas of the economy to Gross Domestic Product, GDP. The current government is clearly committed to the second alternative. And according to that particular perspective, any ‘loss’ of income from ITT would need to be offset by other sources, mining for instance …

With regard to extractivism, the possible signing of a trade agreement with the European Union is more problematic than exploiting ITT. The general tendency of so called free trade agreements is for the more economically powerful partner to give preference to the importation of raw materials rather than manufactured goods or service that might undercut its own economy, thus tending to consolidate the resource dependency of their ‘partners’ rather than helping them develop their own industrial and service sectors.

11. If Yasuní will neither be ‘destroyed’ or ‘saved’, no matter what the final decision about exploiting the ITT fields is, then it seems fair to ask what the debate is really all about. Apart from the party political aspects – regional and local elections are scheduled for February – it is about assessing three things: 1. the extent to which extracting the oil may contribute to greater damage to the park and its biodiversity. 2.  Calculating, or rather guessing at, the real revenues to be gained from exploiting the fields, and what will be done with that money, and 3. the impact developing the fields might have on isolated indigenous groups that live in the area. None of the three aspects is clear cut.

We can quantify the land affected by the oil infrastructure with a fair degree of certainty, but we do not know how many spills there might be, and how they might the biodiversity of the area. Although any spill will clearly be negative, much will depend on how many take place, how much oil is spilled, how quickly that oil is contained and how far it spreads from the site of the accident.

It is estimated that in the Block 43- ITT area there are 2,000 species of insects per hectare and that some 1,000 may be lost due to the deforestation caused by installing the infrastructure. But none of this is easy to check. It is a generalization. We do not know exactly how many species there are in each hectare, or if these insects migrate, or how many are also present in other sectors of the park. Every hectare clearly does not contain 2,000 different species of insect. It has also been argued that the rate of endemism (plants not found elsewhere) is ‘ quite low ‘. With regard to the ‘cost’ of losing that biodiversity, we do not know how to quantify it, in part because we don’t even know what it is. Or perhaps living beings have no price.

Regarding the income the country might receive, there are differences of opinion. According to official sources the income will be in the order of 18 billion (thousand million) dollars. However, much depends on the oil market price from 2017, when the crude begins to flow, and during the productive years of the ITT fields. The projection is that the fields will produce for 29 years, although that obviously depends on the rate of extraction. The income is impossible to predict, and it could be a lot less. One proverbial fly in the ointment is the likelihood of U.S. energy self sufficiency (it could even become an exporter ) due to the exploitation of shale gas reserves and recently discovered deep water oil reserves in the Gulf of Mexico. This will undoubtedly change the scenario, although there does not appear to be a consensus about exactly how the market will react.

In the event that oil prices fall more than expected, the fields would evidently be less profitable. What also remains to be seen is if the calculated reserves are consistent with real levels: the estimates are out of date. And if the cost of producing the ITT field oil reaches $50 or even $ 60 a barrel due to its very low API[6] – approximately 14. It is like tar says oil consultant Henry Llanes –  profits could vanish altogether. And that is without taking into account the cost of environmental remediation, if it ever happens. It is also worth asking what will happen in five or ten years, with another government of possibly a different political stripe. Would the current government’s commitments regarding the allocation of resources be respected?

As for the presence of isolated peoples within blocks 31 and 43, this amounts to something of a mystery. We simply do not know. We know they are there, somewhere, but not where and not when. They could be at certain times in the South of Block 31 or 43, but nobody knows for sure: no reliable studies have been done.  So, given the other doubts that exist, it would probably be wise to delay the start of operations in the two blocks, (especially the Ishpingo field, the most southerly of the ITT group, and the most likely to form a part of the ‘territory’ of the isolated Taromenane, and possibly Tagaeri, indigenous groups)  until we have the necessary information. The Capuchin priest, José Enrique Cabodevilla, who has lived and worked for decades in that area of the Amazon, thinks so. So do I.

12. The money received from the ITT oil will not end poverty. But it is hardly valid to argue, as some do, that if poverty has not been eradicated with all the resources available to the government in the last few years then the relatively minor ITT resources will make no difference. Ending poverty (what country has ended poverty?) does not simply depend on resources, but on the will and, more crucially perhaps, on any government’s ability to change the conditions that cause it in the first place. Ending poverty ? Seven years? Maybe it could have been done, (a big maybe) if this were a socialist government. But it isn’t. Asking if there could be a socialist government in Ecuador at this point in time is also a valid question. And while the U.S. remains the dominant power that it is, I think that possibility is highly unlikely. Tthat does not imply losing hope of someday living in a more equitable society and fighting to make it happen.

I understand, without sharing, the anger generated by the possible exploitation of the ITT fields. What does make me angry is seeing, as I did a few days ago, a young girl of about 15 , evidently poor, with a vacant look that people suffering from malnutrition often have, breastfeeding her baby . It is not that rare. Unfortunately it is an everyday occurrence somewhere in the country. It is sad, an outrage even, that this kind of poverty can still exist. And I do not say this to support the government’s position, but because I think it is a fundamental human emotion. Should we not do absolutely everything to make sure this does not happen to any human being?

13. So should be the ITT fields be exploited or not ITT? Everyone will have their way of analysing the evidence. For my part, weighing everything up, I have come to the conclusion that yes we should. But I cannot say it with much conviction. It is a limited support for a complex decision that has to be taken because we live in a far from ideal world. And, as I mentioned above, I do not support the exploitation of the fields before we know more clearly what implications this might  have for the indigenous peoples living in isolation in the area.

I say yes because I do not believe exploiting the ITT fields will ‘destroy’ Yasuní, that it is simply not true, the area is already heavily intervened. At the same time I admit that income could be less than expected, and that even in the best case scenario will not put an end to poverty. But it will help to some degree, especially in an area historically neglected by the state. I say yes because to propose leaving the ITT oil in the ground and not stop the exploration and extraction in block 31 represents a total contradiction. To ‘save’ the Yasuní, and to make certain the isolated indigenous  groups are protected, implies putting an end to all oil activities that could have an impact on the park, and at the same time reaching an agreement with the Peruvians government to do the same thing in their oil blocks that border on Yasuní.

I am not opposed to the idea. If we are going to be radical, then let us be radical. But I admit that even from the safety of Quito, doing so would represent a tremendous financial risk, a risk that would probably not be acceptable to the country as a whole.

What worries me most is the future of the isolated indigenous groups. I do not know what kind of future they have. I suspect that is not very promising.  Faced with existing pressures (oil, illegal loggers, and murderous confrontations with their ‘brother’ Waorani) it is going to be very difficult for them to survive. So we have to know more about their presence in the area before starting any extraction in the ITT and block 31 fields. There is no other ethical choice.

I also worry about the many people who still live in real poverty in Ecuador. If we leave the ITT oil in the ground there will be economic consequences, and if we don’t find truly ‘alternative’ sources of revenue to replace the income, I feel I/we would need to apologize to the young girl I mentioned (and all the people like her that I have known and those who I have never seen or will see) because we did not do absolutely everything to help. Whether block 43-ITT is exploited or not, a lot more has to be done for the poor people of the country. They cannot be abandoned for ‘ lack of resources’.

There are already proposals for other revenue sources that would help reduce poverty and provide health and education in marginalised areas: reduce subsidies, reduce oil consumption, renegotiate contracts with cell phone companies, raise more money from the haves etc . etc. (Plan ‘C’ ) The problem is that these are not really alternative sources: the Correa government is probably already thinking about all those possibilities. What is needed is something new and unexpected, something that is not already within the government’s reach.

The most creative proposal is for those who support leaving the oil underground to transfer their cell phone accounts to the national provider CNT, providing more income for the state. If the government can be convinced, and if at the same time a sufficient number of subscribers can convinced, the oil could stay underground. The beauty of the proposal is that it would be a citizen initiative, would not cost anything – possibly  a little exasperation – and is not readily available to a government that is always looking for new revenue sources, wherever and whenever they can be found. The idea deserves strong support.

The time to make it work could be found by delaying work on the ITT fields while studies are carried out to determine the real presence of the isolated groups in the area. It is fair to say, however, that at present the chances don’t seem particularly good. The rush is on to develop the fields after five years of trying to raise money internationally, and Rafael Correa isn’t noted for his patience.

Of course, even if the plan worked that would still leave the problem of block 31, the other oil fields that are affecting Yasuní, and the proposed Pacific refinery. It is a complicated business.

*editor of lalineadefuego.info , a Spanish language virtual magazine published in Ecuador. http://www.lalineadefuego.info


[1] TAROMENANI, EL EXTERMINIO DE LOS PUEBLOS OCULTOS. http://vimeo.com/35717321

[2] The Waorani are an indigenous people closely related to some of the isolated groups that live in and close to Yasuní national Park.

[3]Where Is The World’s Greatest Biodiversity? Smithsonian Scientists Find The Answer Is A Question Of Scale. http://www.rainforests.net/betadiversity.htm

[4] Yasuní Rainforest Campaign/Save America’s Forests News Story May 25, 2007 http://www.saveamericasforests.org/Yasuni/News/ITT/Index.html

[5] In the Gutiérrez Government (2002-2004), Baki was Minister of Foreign Trade.

[6] API is a measure of the density of the crude. API is the American petroleum Institute’s inverted scale for denoting the ‘lightness’ or ‘heaviness’ of crude oils and other liquidhydrocarbons. Calibrated in API degrees (or degreesAPI), it is used universally to expresses a crude’s relative density in an inverse measure, the lighter the crude, the higher the API gravity, and vice versa because lighter the crude the higher its market value. Oil with API greater than 30º is termed light; between 22º and 30º, medium; below 22º, heavy; and below 10º, extra heavy. Asphalt on average has an API gravity of 8°, Brent Crude of 35.5°. The Business dictionary http://www.businessdictionary.com

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Oil in the Ground or Pie In The Sky: The Fight for Ecuador’s Yasuní National Park

 1st March 2010,

The resignation of the Ecuadorian Foreign Minister, Fander Falconí, came as a real shock to most observers; it was probably not something Falconí himself had foreseen. His departure in January provoked a minor earthquake within government circles, but a reading of his dispute with President Rafael Correa suggests that whatever the personal grievances, the major problem is not what his resignation implies for the long term well being of the government. The real issue is the future of the complex project he was answerable for, and which led to his exit.

As Foreign Minister, Falconí was responsible for the plan to leave the oil of the Ishpingo- Tambococha-Tiputini (ITT) fields, located in Yasuní National Park, in the ground in exchange for international financial support. The initiative, proposed in 2007 by then Minister of Energy, Alberto Acosta, another of the founders of Alianza Pais, has a great deal of merit and international support, but has met with internal scepticism (at times shared by the President) and even outright opposition. Falconí was responsible for the negotiations, but whatever the shortcomings these may have had, the possibility of his departure was never part of the equation. It seems surprising even now.

Harsh words were exchanged after President Correa declared in his Saturday broadcast that the terms of the negotiation were “shameful”, and had been imposed by foreign governments who could “stick their money in their ears”. The statement was later rectified. It was not foreign governments he said, but a ring of infantile environmentalists that was trying to impose their conditions on the country at large. This is not the first time local environmentalists have been called infantile or been the object of the President’s outbursts. But neither Falconí nor the environmentalists are infantile. Their motivation is Climate Change, an extremely serious phenomenon, and the desire to preserve Yasuní National Park, an area of the Amazon that is not only important nationally but to humanity as a whole.

Oil in the Ground

According to Acosta, the Correa’s remarks could be seen as an attempt to distance himself from the proposal. That may well be true. This is after all a groundbreaking proposal, one that in traditional economic terms will cost Ecuador half the value of the oil in the ground: some US $3.5 billion. But a reading of the document presented as the basis for the Trust Fund to be set up to manage any money received – administered by the United Nations Development Programme (UNDP) – shows that whatever his verbal excesses, the President’s criticisms are not totally unfounded.

An agreement to establish the Fund was to have been signed during the Copenhagen climate Change Summit in December of last year, but was delayed by Correa’s unease over the conditions. As part of the contract Ecuador would not only have agreed to leave almost 20% of its oil reserves in the ground, but would also have protected 38% of Ecuadorian territory (some 9.8 million Hectares (“one of the highest percentages in the world”[1]). Any money generated was to have been spent on renewable energy projects and any income received from those projects would be used for conservation, reforestation, energy efficiency and support for local populations in the protected areas. In addition, the funds would have been spent on projects submitted by “national institutions” (undefined, but most likely large NGOs) rather than by government institutions(2).

The goals are laudable; there is clearly nothing shameful here. But all this probably comes as a surprise to most Ecuadorians, who imagined that any money donated would have been a simple exchange for leaving the oil in the ground. The conditions add a whole new dimension to the plan, a dimension that Rafael Correa was reportedly concerned about when he met with the chief negotiator, Roque Sevilla, in early December.

The original Trust Fund document also raises some questions about the conditions under which it was negotiated. For instance, did the prospective partner governments really know nothing about the conditions that would later appear in the document, as claimed by Sevilla, a founding member and ex president of one of Ecuador’s largest environmental NGOs, the Fundacion Natura. It is possible, although unlikely, that potential contributors such as Germany were willing to offer large sums of money knowing nothing about the conditions under which the money would be used, even if these were not fully defined at the time. Did the negotiators also imagine that it would be acceptable that none of the money could be used for national social programs such as Health, Education or Pensions?

And while the negotiations appeared to have been advancing fairly well, there is still a long road ahead. The German government has stated its support for the project, while other probable partners are said to be Belgium and Spain (a debt swap in the latter case); France and Sweden are considered “possibles”. On the other hand, despite a number of attempts the prospect of money from the United States seems distant, although that might, possibly, change depending on decisions taken by that country’s Senate with regard to climate change. India, China and even Iran have been suggested as other options. Carlos Larrea, advisor to the ITT technical team, suggests that another possibility might be a multilateral fund set up as a result of any post Kyoto Protocol Climate Change agreement.

No matter what the state of negotiations or any doubts about European Economic stability give the economic troubles in Greece, Spain, Portugal and Ireland, according to Alberto Acosta the amounts of money in play are small, and in practice the project’s success will depend more on the President’s political determination than any other factor. Hopefully Acosta will be proved correct, but at this point no one knows for absolutely certain that the money can be raised(3). Rafael Correa’s role apart, that will depend on the willingness of other nations to assume responsibility for Climate Change.

Not a Drop

Now, almost than two months after the dispute which led to Falconí’s departure, the political dust has settled. But the debate goes on, sponsored principally by a corporate media that would undoubtedly oppose the project if its proponent were anyone other than Rafael Correa. But no matter how perverse or politically motivated their support may be, it has helped to keep the project on track. A renewed commitment to the proposal has been publicly stated, a new negotiating structure put into place and changes made to the Trust Fund document that reflect the President’s criticisms. According to National Heritage Minister Maria Fernanda Espinoza, Correa himself will head the project, while heading up the negotiating team will be Ivonne Baki, former Minister of Commerce in the government of Lucio Gutierrez (2002-04), and ‘friend’ of US magnate Donald Trump. Negotiating ability and political astuteness apart, her presence is not designed to win friends amongst environmentalists(4).

Baki has stated that “Not a drop of oil will leave Yasuni”(5), which should calm concerns about her suitability, at least to some degree. But leaving the oil in the ground will not be easy. The Yasuní ITT proposal represents a fundamental shift in economic thinking and, above all, planning. The question now is not its intrinsic value, but whether it can succeed in a dirty world of short term political goals, nationalism, and vested business interests.

Oil is a dirty business, and Ecuador – an exporter since the nineteen seventies – is no stranger to the environmental impacts and social conflicts that the black stuff brings in its wake. But as a major part of its national budget depends on income derived from oil, there has never been much interest in leaving it underground. But this particular case is different. Yasuní National Park, located in the North West of the country on the border with Peru and close to the border with Colombia, is a UNESCO Biosphere Reserve and recognised as one of the most bio-diverse areas on the planet. There is little doubt about its importance, and little disagreement about the need to preserve it.

There is also little argument about the threat posed by the overuse of fossil fuels and consequent changes in the global climate. Even a rise of 2oC above the pre industrial average, agreed at the Climate Conference in Bali in 2009, could have massive implications for humanity, and in the long run any campaign to protect the Park will depend heavily on humanity’s ability to reduce emissions. If global temperatures continue to rise, Yasuní and the entire Amazon region could witness a progressive drying out(6).

But even limiting the climate to that apparently small temperature rise appears increasingly unlikely given the failure negotiations in Copenhagen and the apparent unwillingness of the major polluters to reduce their internal emissions. Drastic measures are needed if the planet is to escape with its life; leaving oil in the ground is one of them. And as the only proposal of its kind, it is not surprising that the ITT proposal has received such widespread international publicity and acclaim.

Unfortunately, there is a complication. The ITT proposal will go a long way towards protecting Yasuní, but alone it will not save the Park from the impacts of oil exploration. There are fields in or close to Yasuní and its buffer zones that are already in production, while others, as yet undeveloped, are located close to and even in the centre of the park itself. To save Yasuní National Park from the impacts of oil all these wells would have to be shut down or left unexploited, as would likely be the case with fields on the Peruvian side of the border that, if exploited, could cause impacts within Yasuní. At a minimum the fields located entirely within the park (Block 31) would have to be included. Saving Yasuní from oil will therefore require not only a much larger amount of political will but also greater financial commitment on the part of foreign governments and a greater financial sacrifice on the part of Ecuadorians. The Peruvians would also have to play their part.

Convincing Peru and other, richer, foreign governments of the value of an environmentally cutting edge proposal such as ITT is an evident difficulty, despite the imminent risks of Climate Change and the value of this region of the Amazon. But this is not the only barrier. Internally the project has also had to fight hard for its life against those who think that the plan makes no economic sense given the global recession, rising oil prices, and the need for revenue to underpin the government’s high social spending levels. It is hardly surprising, therefore, that there is a plan B. This has never been a secret, and it is not necessary to be an expert in game theory to realise that without a credible alternative/threat, any negotiations become much more difficult. The threat is made all the more real by the President’s understandable hesitancy to give up half the value of the oil.

Pie In The Sky?

A recent survey(7) in Quito and Guayaquil, the country’s two major cities, showed that more than 70% of respondents favoured leaving the ITT oil in the ground. It is a commendable attitude and one that has doubtless influenced the decision to keep the project alive. But just how far the Ecuadorian government should be asked, or can be expected, to go in order to protect Yasuní and the planet is an open question. Leaving the ITT reserves in the ground is one thing, but adding the fields of Block 31 – which forms part of Petroamazonas’ plans for this year(8) – and Pañacocha – due to enter production next year(9) – as well as shutting down already existing operations such as those of Repsol in Block 16, is another matter altogether. Surveys of this type are also unreliable. If the other fields were included or people were asked to choose between leaving the oil in the ground and free education or health care, the figures might well look quite different.

There is no need to survey the oil industry. The state oil company, Petroecuador, and others would be more than happy to get their hands on the ITT fields and are quite prepared to put pressure on Correa. According to some sources the recent Ecuadorian-Venezuelan proposal to build a major refinery on the Ecuadorian coast at Manta also depends on the availability of the oil from the ITT fields, although the original, and still viable, plan was to reducing Ecuador’s major petrol and diesel deficit to bring in Venezuelan crude to be refined in Manta. For the moment however, the oil companies are on the back foot, and presuming that Rafael Correa now stands fully behind the negotiations, the goal is to bring in ‘at least’ half the value of the fields, estimated at US$7,000 million.

The figure is in fact fairly arbitrary: the exact amount of money involved cannot be known with any real certainty. The price of oil is a genuine unknown and could easily be higher than the US$60 a barrel used in the initial calculations; a local oil analyst has even estimated the fields to be worth more like US$ 40 billion, although it is unclear how he arrived at his estimate(10). Other options include the suggestion of economist Joseph Vogel that cost recovery should be linked to the amount of infrastructure investment needed to exploit the fields, an estimated at US$5 billion(11). The major unknown is, of course, the outcome of future climate negotiations that will in turn depend on the uncertain, and perhaps catastrophic, performance of the climate within the lifetime of the ITT fields(12). Leaving aside the value of the oil itself, the avoided CO2 emissions alone (some 407 million tons at $20 a ton) would be worth around US$ 8,014 million. In the short term there is no doubt that others will fill the gap left by the ITT oil, but the crux of the issue, as Vogel points out, is that sooner rather than later Climate Change will allow little room for manoeuvre: leaving oil in the ground will be a necessity.

No matter how the price is calculated, one could be excused for asking why Ecuador, a country where sixty percent of the population is unemployed or sub-employed(13), should be financing the emission reductions of developed nations by paying half the cost of leaving oil in the ground. In all probability the fifty percent figure corresponds to an imbalance in bargaining power more than anything else; to be fair it would make sense to find another way to calculate the amount of shared responsibility that falls on Ecuador. One option might be to use GDP per capita as a way to distribute financial responsibility. As the Ecuador’s GDP per capita is roughly one fifth of that of Germany or the UK, its contribution should be approximately 20 percent(14).

Ecuador has an interest in protecting Yasuní and it has been suggested that this accounts for the fifty -fifty share scheme. But this is not an economic interest: Eco Tourism will never replace the financial benefits of oil. The preservation of Yasuní is a recognition of its importance to mankind and to the peoples who live there in isolation(15), a recognition that financial principles are not the only values in play. Whatever the case, and whatever the initial figures used, the $3,500 million figure cited should be considered as a minimum; the major polluters should pay more than half the cost.

Regrettably, should is not a word that fits easily into state budgets or financial planning. National interests are at stake; countries go to war over oil; armies run on their petrol tanks; the military budgets of the nations that consume the most oil and produce the most carbon dioxide are also the biggest in the world.

Plan ‘C’

Alberto Acosta is pressing for the new negotiating structure to be given the three years remaining until the next presidential elections to raise the money. But even if the money is not raised, debate over Yasuní and the ITT fields will be far from over. Exploiting the oil will not be easy. The Constitution does allow the President to permit extractive industries to operate in Protected Areas in cases of national priority. But drilling in Yasuní is bound to generate conflict. Apart from the environmental considerations and possible impacts on voluntarily isolated indigenous groups, local populations will have to be consulted and many indigenous organisations are far from happy with the President and his style. Environmental groups can also be counted on to rally international opinion in favour of preservation. For Acosta, Plan C involves Ecuador taking the initiative and unilaterally deciding to leave the oil in the ground. This, he states, could be a major international boost for Ecuador, the only country to propose something really concrete about Climate Change, and act on it, alone if necessary.

Ethically speaking, the Ecuadorian government should protect Yasuní and, for reasons of global safety, refuse to exploit further oil fields. Taking this to its logical, and ideal, conclusion, the country (pl us Peru, Colombia, Brazil and Bolivia) should shut down all Amazon oil fields as a demonstration of commitment to protecting planet, and the big polluters – the EU, Japan, the United States and Canada – should pay it (them) to do so, while making drastic cuts in their fossil fuel use and beginning the journey towards a post oil economy. Unfortunately for all of us this appears to be an unlikely scenario, at least until the Greenland ice sheet slips into the sea.

Footnotes/References:

1. Ecuador Yasuní ITT Trust Fund: Terms of reference. Final Revised Draft, 11 December 2009

2. A Trust Fund is deemed necessary for two reasons. The first aim is to ensure that any future Ecuadorian government cannot reject the agreement and begin to exploit the oil without returning any funds received. The second is to ensure that any money provided is spent according to the agreed conditions. This is type of clause is generally understood as a way to ensure that irresponsible governments do not waste or even steal the money. The Correa government not unsurprisingly saw this second condition as offensive.

3. The possibility of using carbon emission bonds to finance the initiative has been floated. According to Carlos Larrea, the Yasuní Bonds would not, strictly speaking, be carbon emission bonds and for the plan to work would have to be accepted as such. They would also depend on a market that does not yet exist in the Americas. According to Larrea, a voluntary market approach could also be used, by which individuals or institutions would support the initiative through voluntary surcharges on products, air travel etc. in a type of carbon footprint reduction scheme.

4. Also significant, is that Fernando Carrion will once again form part of the team, although his role will be limited solely to liaison with the UNDP.

5. Interview with Ivonne Baki, Diario HOY, Quito, 08 February, 2010.

6. New Economics Foundation, ‘Growth Isn’t Possible’, London UK January 2010.

7. Vanguardia Magazine, Quito, 25 – 31 Jan, 2010.

8. The General Manager of Petroamazonas, has stated that the state owned company plans to invest US $550 million over the next three years for a maximum production of 35,000 barrels per day. The fields are expected to start producing in two and a half years. Diario El Comercio P6, ´Petroamazonas incorpora el Bloque 31 a su plan de este año´. Quito 26 January 2010.

9. According to Petroecuador the Pañacocha field is expected to produce 25,000 barrels a day by Jan 2011 and will be financed by Social Security funds. IESS financiará la explotación de Pañacocha, Diario El Telégrafo, Guayaquil, 2 February 2010, P8.

10. Augusto Tandazo ´Expertos analizan situación de la iniciativa Yasuní ITT´ ANDES/AR 24 Ene 2010.

11. Vogel Joseph Henry, The Economics of the Yasuní Initiative: Climate Change as if Thermodynamics Mattered. Anthem Press, London, 2009.

12. Calculated at between ten and fifteen years after production begins, which would itself take five years from the time of any decision to exploit. If a decision were made today, the ITT fields would be nearing the end of their life sometime around 2030.

13. At the end of 2009 the figures were unemployment of 7.9 % and sub employment of 50.5% (of the economically active population). Instituto Nacional de Estadísticas y Censos (INEC).

14. According to the CIA World Factbook, the estimated 2009 GDP per capita of the three countries (based on Purchasing Power Parity) is Germany US$34,200, UK US$35,400, Ecuador US$7,300.

15. The Tagaeri – Taromenani, closely related to another larger and more integrated group, the Huaorani, live in voluntary isolation in the Intangible Zone of the Park, whose northern limit is close to the Ishpingo field