You Pay Or We Drill
It’s hard to charge people for not doing something. So when Ecuador asked the world for $3.6 billion to not drill for oil, the world balked. But in terms of reining in carbon, Ecuador may be on to something.
By Dawn Stover
President Rafael Correa of Ecuador leans back against his seat in a wooden canoe, one rubber-booted leg propped on a gunwale. In a photo of this family outing, he and his wife and three children are all wearing bright-blue life vests. They are vacationing at the Napo Wildlife Center, an ecolodge run by an indigenous community within Ecuador’s Yasuní National Park. Correa smiles as the canoe passes within a few yards of a half-submerged black caiman, a type of alligator that is the largest predator in the Amazon and one of countless species found in the park. Yasuní is one of the most biodiverse places on the planet—but hidden beneath these biological riches is another national treasure: billions of barrels of crude oil.
At the time, the president was basking in his role as an environmental hero. Correa had put forth an unusual proposition to the world’s wealthy countries: Give Ecuador $3.6 billion, said Correa, and the country would forego oil drilling in key parts of Yasuní National Park. Correa and his advisers calculated that $3.6 billion was roughly half the revenue the Ecuadorian government would otherwise get from extracting oil in a block of the park known as the ITT (which stands for Ishpingo, Tambococha, and Tiputini).
Ecuador is an impoverished country that depends on oil for one-third of its national budget, and the 850 million barrels of oil believed to lie beneath the ITT’s rainforest represents about 20 percent of the country’s known reserves. Keeping this oil underground would not only protect the area’s tremendous biodiversity and the indigenous people living there, it also would benefit the entire world by preventing the release of some 400 million tons of carbon dioxide into the atmosphere. Although the ITT contains only a small fraction of the world’s total oil reserves, Ecuador’s proposal had big implications. Correa’s idea to sell the inverse of drilling rights (i.e., not drilling) offered an elegantly simple solution to one of the greatest environmental and economic conundrums of our time: there is far more oil underground than can ever be safely burned. But the first attempt at a deal didn’t go well. And Correa is no longer basking in a green glow. In mid-August of 2013, he made a stunning announcement that angered many Ecuadorians as well as environmental activists around the world. “Long time since I was so nervous!” he posted on Twitter a few minutes before he went on national television to say that he was issuing an executive order to terminate the Yasuní-ITT Initiative. “The world has failed us,” Correa said. His opponents, though, say that it is Correa who has failed the world.
Yasuní’s Quadruple-Rich Biodiversity
Thanks to its proximity to both the Equator and the Andes mountain range, which together keep the weather warm and wet, Yasuní National Park may be richer in plants and animals than any other place on Earth. At the Napo Wildlife Center alone, almost 600 species of birds have been documented. The park has more than 300 types of reptiles and amphibians and about 200 kinds of mammals (including at least 10 species of monkeys).
It’s hard to believe that only a few years ago people worried about “peak oil.” The boom in unconventional fuels—such as bitumen extracted from Alberta’s tar sands and oil extracted from North Dakota’s Bakken shale formation by hydraulic fracturing (“fracking”)—has swelled global reserves even as climate scientists issue ever-sterner warnings that burning more than a small fraction of these reserves would be suicidal.
Traditional environmental solutions have focused on the demand side of the energy equation: for example, imposing carbon taxes and fuel standards to reduce oil consumption. Ecuador’s proposal attacked the problem from the supply side.
Scientists who have done the math calculate that at least two-thirds of the world’s current reserves of oil, coal, and gas must remain untapped to keep the average global temperature from rising more than two degrees Celsius above its pre-industrial level. Going beyond that internationally agreed-upon temperature limit would have dangerous impacts on sea level, weather, agriculture, and biodiversity.
In a United Nations Intergovernmental Panel on Climate Change assessment released in September 2013, an international team of hundreds of climate experts estimated that by 2011 fossil fuel combustion, cement production, deforestation, and other anthropogenic sources had released about 1,900 gigatons of carbon dioxide into the atmosphere since the Industrial Revolution. The scientists calculated that the world would have to limit itself to a total carbon dioxide budget of no more than 3,670 gigatons in order to have a two-in-three chance of keeping the maximum temperature rise to two degrees. Accounting for non–carbon dioxide greenhouse gases (such as methane), emissions from permafrost, and other factors would require an even smaller budget. Increasing the odds of success beyond two in three would shrink the budget further still.
Even with a relatively generous carbon budget, the already-emitted carbon dioxide leaves only about 1,000 gigatons for the years after 2011. That may sound like a lot, but at the rate we’re going, we’ll hit the carbon dioxide ceiling in less than 30 years—long before we run out of fossil fuels. The International Energy Agency has reported that the world’s proven reserves of oil, coal, and gas are equivalent to almost 2,860 gigatons of carbon dioxide. In other words, we have about three times as much carbon underground as we can now afford to burn.
The Carbon Tracker Initiative, a nonprofit organization that studies carbon budgets, has warned that the remaining vast reserves of unburnable carbon will become stranded assets. And those stranded assets could destabilize world financial markets. Oil and gas companies, the most profitable corporations in history, are counting their fossil fuel reserves as money in the bank and continuing to spend capital on finding and developing even larger reserves. Think of it as a homeowner who borrows based on the inflated value of a home: When this “carbon bubble” bursts—for example, when governments finally enact policies to restrict or penalize the burning of carbon—the devaluation of fossil fuel reserves may be even worse than the housing bubble that sent shock waves down Wall Street five years ago. Companies such as BP and Shell could lose more than half of their market value, according to a January 2013 report by British banking giant HSBC Global Research.
Near-term milestones for emissions reductions could help prevent the carbon bubble from rapidly expanding to a catastrophic pop. Targets and pledges for emissions reductions have been notoriously ineffective thus far, though. Ecuador’s cash-for-cache proposal seemed to offer an easier and faster way to let some air out of the bubble.
The Tight Global Carbon Budget
In order to have a probable chance of capping global temperature rise at 2°C (from pre-industrial levels), scientists calculate that we must limit emissions to no more than about 1,000 gigatons CO2 from 2012–2100. According to the IPCC’s best-case scenario, in which we halve emissions by 2050, we can stretch the budget out past mid-century. In the worst-case, business-as-usual forecast, we would burn through the budget by 2034.
The Yasuní-ITT Initiative was born in 2007, not long after Correa took office. That April, Alberto Acosta, who was then Ecuador’s Minister of Energy and Mines, proposed the initiative as a way for Ecuador to generate money from the ITT without drilling. Correa endorsed the idea two months later. The initiative would not only combat climate change but also protect the ITT’s biodiversity and its indigenous people. The revenues would be invested in renewable energy and sustainable development projects. Correa launched the initiative at the United Nations General Assembly in September 2007.
A year later, voters in Ecuador approved a new constitution. It was revolutionary in several respects. The preamble celebrated Mother Earth and introduced the concept of buen vivir (or sumak kawsay, in the indigenous Kichwa language)—which translates roughly as “the good way of living” and means coexisting in harmony with nature and with other people. A full chapter was devoted to the rights of nature, and another chapter recognized the rights of indigenous peoples—defining the territories of people living in voluntary isolation as irreducible, with all forms of extractive activities forbidden there.
Ecuador, with its jungles and Andean highlands and Galápagos Islands, was gaining prominence as an ecotourism destination—like Costa Rica, but even richer in natural resources. For a while, it seemed as though Correa might be the world’s greenest president.
But Correa had been hedging his bets. Although he stated his first choice would be to leave the ITT oil in the ground, he also announced that he had a “dilemma of conscience.” Before endorsing Acosta’s proposal, he took steps to create a backup strategy known as Plan B. In April 2007, Correa traveled with Carlos Pareja, president of Ecuador’s state oil company PetroEcuador, to Brazil—where he signed a nonbinding memorandum of understanding that formed a consortium between PetroEcuador and state oil companies from Brazil, China, and Chile to develop the ITT oil fields.
With Plan B waiting in the wings, the Yasuní-ITT Initiative got off to a slow start. But by 2010, Ecuador had resolved some of the initial concerns about the proposal by setting up a trust fund—administered by the United Nations Development Programme—to accept contributions, finance projects, and issue guarantees that the government would not drill for oil in the ITT fields.
At the 2010 United Nations Climate Change Conference in Cancún, three years after announcing the initiative to the world, Correa expanded on the idea by presenting “a proposal for buen vivir” called Net Avoided Emissions. The idea was to provide a mechanism to compensate developing countries for choosing not to exploit natural resources that generate greenhouse gases. Net Avoided Emissions would be a larger framework for programs such as the Yasuní-ITT Initiative and the United Nations’ REDD program (short for Reducing Emissions from Deforestation and Forest Degradation), which provides financial incentives for poor communities to develop alternatives to cutting trees. Proponents of the Yasuní-ITT Initiative hoped that the Net Avoided Emissions mechanism would enable other “mega-diverse” developing countries with fossil fuel reserves in biologically sensitive areas of the tropics to keep their oil underground. Think Bolivia, Brazil, Colombia, Costa Rica, Democratic Republic of Congo, India, Indonesia, Madagascar, Malaysia, Papua New Guinea, Peru, the Philippines, and Venezuela. . . .
The ideas kept coming. In Peru, at an October 2012 summit of Arab and South American countries, Correa proposed that the Organization of Petroleum Exporting Countries (OPEC, of which Ecuador is the smallest oil-producing member) levy a 3.5 percent tax on every barrel of oil exported to rich countries. The revenues would be used to help developing countries adapt to climate change. The idea is called the Daly-Correa tax because economist Herman Daly was the first to suggest it.
When I visited Ecuador in February 2013, hopes were still running high. I was there at the invitation of the Ecuadorian government, which was trying to boost international interest in its initiative. I traveled to the Tiputini Biodiversity Station, located on the edge of Yasuní National Park and accessible only by boat. I drifted down the Tiputini River in a canoe under a full moon, looking for caimans. I paddled on a small lagoon where I saw a strange bird called the hoatzin (“stinky turkey”), which has a cow-like form of digestion. I climbed an observation tower and watched woolly monkeys swinging through the branches below. I learned about medicinal plants that can cure sinus congestion, fungal infections, and arthritis. I saw a palm tree known as the “jungle dildo” because it has a root that not only penetrates the ground but is lubricated for that purpose. At night I used my flashlight to peer into a tarantula hole, and I lay awake listening to a raucous symphony of frogs and insects.
In Quito, I met with Daniel Ortega, an adviser in Ecuador’s Ministry of Foreign Affairs. The Yasuní-ITT Initiative, he said, is “perhaps our most popular and supported public policy.” Ortega told me, “the commitment has for the Yasuní is true and real.” I heard similar assurances from Ivonne A-Baki, Ecuador’s Secretary of State for the Yasuní-ITT Initiative, who said that the initiative had a 13-year timeline for raising funds. A former painter and Ecuadorian ambassador to the United States, A-Baki said support for the initiative was gaining momentum. “I am sure the Yasuní will not be touched,” she said. “It’s not going to happen.”
But there were cracks in the Ecuadorian government’s green façade. Correa issued repeated warnings that he would move forward with Plan B if the international community did not support Ecuador’s proposal. Acosta, who ran against Correa in the 2013 presidential election, said on the campaign trail that Correa would abandon the ITT initiative if he won re-election.
And he did. In announcing the liquidation of the Yasuní trust fund, Correa explained that the fund had attracted deposits of only $13.3 million, far short of the $3.6 billion Ecuador needed in compensation for its lost oil revenues. Why didn’t more nations pony up? The reasons vary.
“Many countries would like to contribute to Yasuní, but the Net Avoided Emissions brand is a problem for them,” said Gabriel Jaramillo, an environmental program specialist with the U.N. Development Programme, when I met with him in Quito last February. Although Correa and others had stressed that Ecuador was seeking “co-responsibility” rather than charity, countries such as Germany did not like the idea of “payment for non-action,” as German Minister of Economic Cooperation and Development Dirk Niebel put it. Instead of contributing to the trust fund, Germany opted to directly fund conservation projects within the park.
Some countries, such as Norway and Qatar, were concerned about the global climate problem but also sensitive to the suggestion that oil-exporting countries should bear responsibility for it. “It’s very difficult to be an oil producer and pay other countries not to produce oil,” said Jaramillo.
Italy made the biggest contribution to the Yasuní trust fund, about $4 million in deposits and another $44 million as a debt write-off. Although Ecuador initially wanted to accumulate at least half of the $3.6 billion funding goal before spending any of the money, Italy “wanted to see something more concrete in the short term,” said Jaramillo. As a result, some of the Yasuní money was designated for construction of the Huapamala Hydroelectric Project, a small power plant in the southern Andes.
The United States and other big gas guzzlers were unresponsive to Ecuador’s proposal. A Department of State cable sent from Quito in March 2009 (and later disclosed by WikiLeaks) after a meeting at which western diplomats were briefed on the Yasuní-ITT Initiative noted, “there is little doubt that the Yasuní reserve contains remarkable biodiversity and is worth preserving,” but the cable warned that there were several problematic aspects to the proposal. U.S. officials were concerned about “lack of clarity on the guarantees that the will provide” and “continued pressure to develop the petroleum reserves.” The cable didn’t mention that the United States buys about half the oil that Ecuador exports and thus may have a vested interest in maintaining this supply.
Skepticism about whether Ecuador—and Correa—could be counted on to keep the ITT oil underground seems to be the main reason why the proposal fell flat. From the beginning, some critics of the initiative accused Ecuador of environmental “blackmail,” while others warned that drilling in the ITT fields was inevitable. Ecuador’s historical instability and Correa’s volatility haven’t helped. Correa routinely rages against the press and has grown increasingly authoritarian in office.
In his August 15 televised address, Correa made clear that he was not only liquidating the Yasuní trust fund but also moving immediately to seek legislative approval for opening the ITT sector to oil companies. PetroEcuador has already pushed ahead with oil development in a block adjacent to the ITT. Correa said it is hypocritical for other nations to expect Ecuador to leave its resources untouched when “they are the polluters.”
Citizens and environmental groups within Ecuador are protesting Correa’s decision, and a petition drive is under way to put the decision to a national referendum. A poll conducted in Ecuador a few years ago found that 78 percent of respondents supported the Yasuní-ITT Initiative. Even so, it is unlikely that the initiative’s popularity, the country’s constitutional protections for nature and indigenous peoples, or the fact that more than half of the ITT block is located within a national park will prevent oil development in the ITT.
The demise of Ecuador’s proposal is a reminder that climate change is a wicked problem, and not just because of the cost of solutions. In the end, the failure of the Yasuní-ITT Initiative was due more to a lack of trust than to a lack of funds.
Yasuní, despite its apparent failure, raised an important debate about how to keep carbon out of the atmosphere. Traditional environmental solutions have focused on the demand side of the energy equation: for example, imposing carbon taxes and fuel standards to reduce oil consumption. Ecuador’s proposal, however, attacked the problem from the supply side.
Correa’s offer not only pointed out that oil drilling has global environmental impacts as well as local ones; it also highlighted the inherent unfairness of expecting developing countries to shoulder the economic burden of leaving natural resources untouched—even as the citizens of developed countries continue to enjoy the benefits of exploitation and pump out carbon.
It’s possible that Ecuador’s proposal will resurface again in another form or in a different political climate. In a paper published in 2012 in the Journal of Political Economy, Bård Harstad, a professor of economics at the University of Oslo, argued that the most effective climate policy for a multinational coalition is to buy fossil fuel extraction rights with the intention of not using them. It’s not hard to imagine, for example, a climate coalition made up of wealthy developed nations that would buy extraction rights from poorer nations. Multinational corporations already trade extraction rights; climate coalitions could do the same.
It wouldn’t be cheap. But stacked up against the alternatives, such a coalition looks downright expedient. Carbon taxes are a lot more complicated to implement and can create perverse incentives for nonparticipating countries to burn more carbon—because fuel prices fall as demand goes down. Techno-fixes for removing carbon from the atmosphere or blocking the sun’s rays are risky and expensive. And alternative energy sources may take decades to scale up.
“The Yasuní-ITT Initiative seems to be a good example of what may constitute an efficient climate policy,” Harstad says. “There exists no better climate policy than not drilling.”