THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE
DEPARTMENT OF AGRICULTURAL ECONOMICS AND RURAL SOCIOLOGY
THE YASUNI-ITT INITIATIVE: PROTECTING BIODIVERSITY THROUGH ECONOMIC DEVELOPMENT AND INTERNATIONAL COLLABORATION
LAURA DIGIULIO Spring 2012
A thesis submitted in partial fulfillment of the requirements for baccalaureate degrees in Community, Environment, and Development, Spanish, and International Studies with honors in Community, Environment, and Development
Reviewed and approved* by the following:
Anouk Patel Assistant Professor of Rural Sociology Thesis Supervisor
Theodore Alter Professor of Agricultural, Environmental and Regional Economics Honors Adviser
* Signatures are on file in the Schreyer Honors College. i
ABSTRACT
Within a part of eastern Ecuador called the “Oriente”, which is home to the Yasuní National Park in the Amazon Rainforest, lay the Ishpingo, Tampococha, and Tiputini (ITT) oil fields. These fields hold not only vast oil reserves, but also a unique opportunity for environmental justice and change in natural resource economics and policy. The Ecuadorian government has been faced with a choice: drill for the oil and endanger precious ecosystems, or forego the oil revenue and preserve this natural gem. However, Ecuadorian President Rafael Correa has proposed a potential third option, called the Yasuní-ITT Initiative. This endeavor would require international reimbursement to Ecuador for half of the revenue that will be foregone if the oil is left in the ground, but would allow for the preservation of a part of the rainforest within the Yasuní National Park. The project has already experienced some success, but will require enhanced and ongoing support into the future. This paper will explore the economic consequences of the Yasuní-ITT Initiative in the context of the Kyoto Protocol and the “resource curse” experienced in some developing countries, showing that the societal benefits of supporting the Yasuní-ITT Initiative likely outweigh the costs.
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TABLE OF CONTENTS
List of Figures and Tables………………………………………………………………..………iii
Acknowledgements……………………………………………………………………………….iv
Introduction
A History of Oil in Ecuador………………………………………………………………1
The Yasuní National Park…………………….…………………………………………...3
Threatened Peoples………………………………………………………………………..5
ITT Oil Potential…………………………………………………………………………..8
The Correa Administration’s Yasuní-ITT Initiative………………………………………9
Research Questions………………………………………………………………………14
Background
The International Panel on Climate Change and a “new economic logic”………………16
Texaco/Chevron………………………………………………………………………….19
Oil and the Environment…………………………………………………………………23
Carbon Abatement and the Yasuní-ITT Initiative……………..…. …………………………….25
The General Economic Theory of Second Best and the Kyoto Protocol………………………..30
The “Resource Curse”……………………………………………………………………………32
Towards a Post-Petroleum Economy…………….. ……………………………………………..36
Conclusion……………………………………………………...………………………………..42
Research Approach………………………………………………………………………………44
Policy Recommendations………………………………………………………………………...48
Summary….………………………………………………………………………………...……50
Works Cited……………………………………………………………………………………...52 iii
LIST OF TABLES AND FIGURES
Figure 1: Oil Exports, 1965-2020…………………………………………………………………3
Figure 2: Location of the Yasuní National Park in Ecuador………………………………………3
Figure 3: Map of Ecuador; Yasuní National Park, Waorani Territory, and the Intangible Zone…5
Figure 4: Location of ITT Oilfields……………………………………………………………….8
Table 1: Donors and Donations………………………………………………………………….13
Figure 5: Oil Discovery Trend…………………………………………………………………...17
Figure 6: Net Difference- Additions to World Oil Reserves & Oil Consumption (Annually)…..17
Figure 7: Net Economic Benefits- Yasuní-ITT Initiative vs. Plan B…………………………….27
Figure 8: Ecuador’s Oil Production and Consumption, 2000-2010……………………………..34
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ACKNOWLEDGEMENTS
Thank you to my thesis adviser, Anouk Patel, for her guidance and patience throughout this process. My honors adviser and second reader, Ted Alter, was also instrumental in the formation and organization of the ideas for this thesis. I could not have completed this work without their help and support. I would also like to thank my friends and family for being there during those stressful moments and reminding me to take things one step at a time. Thank you to my brother, Anthony DiGiulio, for encouragement and advice, and to my boyfriend, Alexander Flores for his patience, support, and radiant optimism. I would also like to thank my host family in Lumbisí, Ecuador for welcoming me into their home, as my time there would surely not have been as beneficial or influential as it was to me if not for them. I am also sure that my thesis experience would have been much less rewarding without the commiseration and comic relief I found in my housemates, especially fellow Schreyer students Claire Steiner and Andy Goga. Finally, thank you to my parents, Tony and Sandy DiGiulio, for encouraging and supporting me throughout my education and in all of my endeavors. 1
INTRODUCTION
This paper will consider the ecological, economic, and developmental implications of the Yasuní-ITT Initiative in order to analyze the project’s potential as a leader in a new breed of environmental policy. By employing the data on the costs and benefits of carbon abatement and natural resource preservation, as well as economic and development theories, this thesis will outline the likely consequences of the Yasuní-ITT Initiative. The implications of the project on environmental concerns and financial resources, previous policies like the Kyoto Protocol, and Ecuador’s growth as a resource-rich, developing nation will also be discussed. The paper aims to show how the Yasuní-ITT Initiative could provide a framework though which Ecuador and other developing nations could reduce pollution, deforestation, biodiversity loss and many other environmental costs without sacrificing economic development. Finally, suggestions for how the policy might be altered should insufficient international support be offered or adapted in other parts of the world will be examined.
A History of Oil in Ecuador
In 1878, Ecuador’s National Assembly granted exclusive rights to M.G. Mier and Company for the extraction of petroleum and other substances in the Santa Elena Peninsula on the country’s west coast (Chevron Inc. U.S.A. n.d.). Exploration began in the “Oriente” (eastern, Amazonian) region of the nation in the 1920s, but oil was not extracted until years later (Coutsoukis 2004). The first government oil concession given in the Oriente went to Shell Oil in 1937 (Chevron Inc. U.S.A. n.d.). In 1964 Texaco Petroleum Company (a subsidiary of Texaco) and Gulf Oil were invited by the Ecuadorian government to explore and produce oil there as well (Chevron Inc. U.S.A. n.d.). In 1972 Texaco helped to build Ecuador’s first oil pipeline running from the eastern rainforest out to the Pacific coast, which allowed for significant increases in both production and exportation (Donahue 2003).
By the mid-1980s coastal production had fallen and in the late 1980s most of Ecuador’s proven reserves (1.6 million barrels) remained in the northern part of the Oriente (Coutsoukis 2004). The success experienced by the Texaco-Gulf operations attracted more foreign companies 2 to the Oriente and over the twenty years that followed more than fifty new wells went into production (Coutsoukis 2004). By 1986, petroleum made up over 14 percent of Ecuador’s GDP (Coutsoukis 2004). In 1989, Ecuadorian crude oil production amounted to more than 1.1 billion barrels, with over 99 percent of that amount originating from the Oriente. Since then, oil extraction has been a very important part of the Ecuadorian economy (Adoum et al. n.d., 2); with petroleum now ranking as the developing nation’s largest export and source of income (43% of the nation’s federal budget in 2005 [Backer 2010]).
In 2000, Ecuador’s then President Gustavo Noboa allowed the construction of a second pipeline, known as the Oleoducto de Crudo Pesado (OCP) to allow for more production and to attain eligibility for assistance from the International Monetary Fund (IMF) (Donahue 2003). The pipeline, which was completed in 2003 (Asociación de la Industria Hidrocarburífera del Ecuador (AIHE) n.d.), cost $1.1 billion and follows a 300-mile route crossing fragile ecosystems and 11 protected areas (Donahue 2003). One of these areas is home to the Mindo Nambillo Cloud Forest1 Reserve, which is thought to be one of the most important areas of intact cloud forest in the Ecuadorian Andes (Donahue 2003). The majority of the oil that flows through the OCP is sold in markets on the west coast of the United States (Donahue 2003).
Although Ecuador exports a significant amount of oil relative to its geographic area (about the size of Colorado), it is evident in Figure 1 that the nation has never been a major producer on the global scale. Furthermore, Figure 1 shows that Ecuador’s relative share in the market is only predicted to decrease. This may suggest that a reduction in the amount of Ecuadorian oil being traded internationally (i.e. the ITT oil2) as a result of policies such as the Yasuní-ITT Initiative would have a minimal impact on the world energy market. (Adoum et al. n.d., 42) Nonetheless, oil continues to be an important export for Ecuador’s national economy. A few years ago Ecuador’s Yasuní National Park also gained significance to the industry when great amounts of crude oil were discovered in a section of the park now known as the Ishpingo, Tampococha and Tiputini (ITT) oil fields. Oil companies such as Petrobrasil have since
1 According to the United Nations Environment Programme-World Conservation Monitoring Centre, a cloud forest is a “…type of evergreen mountain forest found in tropical areas, where local conditions cause cloud and mist to be be frequently in contact with the forest vegetation.” (United Nations Environment Programme-World Conservation Monitoring Centre n.d.) 2 The Ishpingo, Tampococha, and Tiputini (ITT) oil fields, which hold over 850 million barrels of crude oil and are located in the Yasuní National Park in the Ecuadorian Amazon, would be left untouched under the Yasuní-ITT Initiative. 3 expressed serious interest in extracting this oil. However, the residents of the area, as well as a significant portion of the Ecuadorian public, oppose this due to their concerns for the preservation of biodiversity, the environment, and human rights within the Yasuní National Park.
Figure 1: Oil Exports, 1965-2020
(De Sousa 2008)
The Yasuní National Park Figure 2: Location of the Yasuní National Park in Ecuador
(Gordon 2007) 4
The Yasuní National Park was created in 1979 and is made up of 9,820 sq. km of rainforest (Bass et al. 2010) in the Ecuadorian province of Francisco de Orellana (Climate Alliance 2010). A 10 km buffer zone surrounds the park in all directions but to the east (which meets the Ecuador-Peru border) (Bass et al. 2010). The park lies within the upper Amazon Basin of Ecuador’s “Oriente” region, which is known to be very rich in oil (Donahue 2003). Within this expanse lie the Ishpingo, Tampococha and Tiputini (ITT) oilfields, along with many other oil concession blocks. Despite the threats it faces, the park is a designated “protected area” and sits at a unique location: the intersection of the Andes, the Amazon, and the Equator (Bass et al. 2010). The park lies within the “Core Amazon”, a particularly wet section of the rainforest, and is typically very warm with high humidity and rainfall (Bass et al. 2010). The park also encompasses one of the most bio-diverse areas of the entire planet, and has been declared a Biosphere Reserve by UNESCO (Gallagher 2009).
Within this area live 28 endangered vertebrate species (“Ecuador Agrees to Keep Amazon Eco-Treasure Free of Oil Drilling” 2010), 593 species of birds (Adoum et al. n.d., 15), and nearly as many tree species (in any 2.5 acres of the park) as in all of the U.S. and Canada combined (Finding Species n.d.) . There is a total of 67 threatened species living in the area, which also holds 25% of Amazonian freshwater and hosts 562 fish species (Warnars 2010, 56). Each million hectares of the park contains 80 bat species, 150 amphibian species, 4,000 vascular plant species, and 121 reptile species (Adoum et al. n.d., 15). The park also boasts the highest insect concentration in the world (Adoum et al. n.d., 15). Finally, the area is home to many medicinal plants, such as Chuchuhuasi, which is used by local communities to ease stomach pains and to help with blood loss during childbirth (El Comercio 2011).
Due to all of these unique and diverse qualities, the Yasuní National park brings 20,000 tourists to Ecuador each year (Gallagher 2009). Despite these assets, oil production has taken place within the Yasuní National Park, especially in its northern half (Bass et al. 2010). Access roads have invited colonization, deforestation, overhunting, and illegal logging in the northwestern section of the park as a result of these operations (Bass et al. 2010). Luckily, most of the park is still covered with intact forest, and as such, serves many environmental purposes (Bass et al. 2010). 5
A major environmental service provided by the area is the creation of some of the Earth’s “carbon sink”. A carbon sink would be an area like the Yasuní National Park, rich in vegetation and in turn capable of absorbing some of the CO2 produced by human activities (Vogel 2010, 16). Consequently, the park is also sometimes referred to as one of the “lungs of the world” (Backer 2010). Additionally, the western part of the Amazon (where the Yasuní National Park and the ITT oilfields are located) is predicted to maintain a more stable environment amidst changes in the global climate, and could potentially provide a refuge for several plant and animal species that may die out elsewhere (Finding Species n.d.).
This could provide a ray of hope for the survival of biodiversity in a world suffering from rapid habitat loss (Finding Species n.d.). In fact, the area already served as a refuge for biodiversity during the Pleistocene Epoch when glaciation transformed most of the Amazon into grasslands (Climate Alliance 2010). The Yasuní National Park is not only vital piece of one of the world’s most important ecosystems, but it serves as a carbon sink, protects bio-diversity, and has provided a home not only to an irreplaceable portion of the natural world, but also to groups of people like the Waorani.
Threatened Peoples
Figure 3: Map of Ecuador; Yasuní National Park, Waorani Territory, and the Intangible Zone
(“Indigenous Peoples” n.d.) 6
The Waorani people, “waorani” meaning “human being”, call a great area of the Ecuadorian Amazon home. This includes the Yasuní National Park, the designated Waorani Territory, and the Intangible Tagaeri Taromenane Zone (ITT Zone, which, despite the shared acronym and geographic proximity, is separate from the ITT oil fields both in exact location and etymologic origin) (“Indigenous Peoples” n.d.). As shown in Figure 3, the park overlaps the Waorani Territory, and in 1989 much of this area, as well as the adjacent Waorani Ethnic Reserve, were designated a UNESCO Man and Biosphere Reserve (Bass et al. 2010). In addition to the larger Waorani population, there are also two groups, the Tagaeri and the Taromenane, living in this part of the Amazon. However, these groups live in voluntary isolation (Gallagher 2009) in the ITT Zone, subsisting entirely off of the land, local species, and traditions passed down from their ancestors (“Eco-social backdrop” n.d.).
The ITT Zone lies in the south of the Yasuní National Park and consists of about 700,000 hectares of rainforest (Climate Alliance 2010). Created in 1999, the ITT Zone exists to protect those living in voluntary isolation as well as to ban any mining, oil activity, logging, colonization, and other activities that may hinder biodiversity health and ethno-cultural conservation in the area (Climate Alliance 2010). The Tagaeri are the Waorani followers of Taga, who chose to live within it because they wanted nothing to do with the outside world. Taga, and other like-minded Waoranis, retreated further into the wilderness of the Intangible Zone to escape the “kuguris”3 in the 1960s and have since lived in voluntary isolation as the “Tagaeri” (“Indigenous Peoples” n.d.). The Tagaeri have since done a good job at repelling any “kuguris” that have entered their territory, keeping the ITT Zone well protected (“Eco-social backdrop” n.d.). The Taromenane, on the other hand, are native people who have never been contacted by civilization and about which there exists very little recorded knowledge (“Indigenous Peoples” n.d.).
Other indigenous groups (not originally from the Yasuní area) such as the Quichua, the Achuar, and the Shuar, have been “given” land within the Waoranis’ territory by oil companies wanting to drill where they lived. The Shuar, for example, who come from south of the Yasuní with a population of over 110 thousand and a reputation as the “headhunters of the Amazon”,
3 The term “kuguris” refers to the “invaders” that came along with the start of oil exploration in the Oriente. (“Indigenous Peoples” n.d.). 7 have been pushed into Waorani territory. This can lead to fighting between tribes and the occasional need for military intervention to stop it. Another group that has been affected by oil production in the Ecuadorian Amazon is the Cofanes, who live north of the Yasuní National Park. The Cofán population, influenced significantly by the alleged Texaco oil spills4, has been reduced to approximately 350 members. (“Indigenous Peoples” n.d.)
Indigenous peoples like the Waorani have lived in these areas for thousands of years, leading semi-nomadic lives that depend upon the season. They also use plants, like the aforementioned Chuchuhuasi, for medicinal purposes and have never settled in one place long enough to require the construction of durable shelters. This semi-nomadic way of life requires access to vast areas of wilderness, and in the past the Waorani roamed an area of 2 million hectares. However, after Waorani contact with the outside world began in 1958, the boundaries of their ancestral territory quickly came under pressure. Those 2 million hectares were effectively cut down in 1983 when the U.S.-based Summer Linguistics Institute Evangelical Christians helped to form the Waorani “reservation”, which reduced Waorani hunting grounds down to 612,000 hectares. In 1990, the Waorani Territory became official under a government policy stating that the Waorani owned the land but that they did not own what was underneath it. (“Indigenous Peoples” n.d.)
Through the colonization and infrastructure (such as roads) that has come from oil production, the Waorani have become divided into two groups; those who welcome oil activity and those who want to preserve the lifestyle of their ancestors (“Indigenous Peoples” n.d.). This has disrupted the natural equilibrium the Waorani once shared with the rainforest; for example, overhunting (in response to the demand from outsiders seeking rainforest novelties) has put undue and unsustainable pressure on local species (“Indigenous Peoples” n.d.). In 2005 a group of Waorani community members wrote a letter to Ecuadorian President Correa in which they asked, “What will happen when our children grow up? Where will they live when they are older? Our rivers are tranquil and in the forests we find the food, medicines and other necessities that we need. What will happen when the oil companies finish destroying what we have?” (Climate
4 Contamination is thought to have occurred as a result of Texaco’s oil operations in the northern Ecuadorian Amazon from the 1960s to the 1990s, prompting a legal battle that continues today and will be discussed further in the “Texaco/Chevron” section of this paper. 8
Alliance 2010). Oil extraction in the Amazon poses serious challenges to the Waoranis’ traditional way of life.
While human rights will not be the main focus of this paper, it is important to note that all three of these indigenous groups will be greatly affected by any further drilling in this part of the Amazon. Furthermore, this specific region of the Amazon is highly bio-diverse and has been a home for these people for thousands of years. While the tribes in voluntary isolation have the potential to be most dramatically impacted, the freedom to maintain their cultures is at risk for all peoples living in the area. It is true that some Waorani have adopted aspects of the more “mainstream” culture and welcome contact with outsiders, but most continue to inhabit the Ecuadorian Amazon, living in concordance with their ancestral traditions.
ITT Oil Potential Figure 4: Location of ITT Oilfields
(Acosta 2009)
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The ITT oil fields were discovered in the northeastern section of the Yasuní National Park in the 1990s and now represent the second largest untapped oil fields in Ecuador (Bass et al. 2010). The oil reserves therein are predicted to contain at least 850 million barrels of oil; a quantity that makes up 20% of Ecuador’s current oil reserves (Gallagher 2009). The current value of this quantity of crude oil is $7.25 billion (Adoum et al. n.d., 4). With petroleum as its top export and the federal government’s largest source of income, Ecuador has an immediate financial motivation to permit drilling operations in this area.
The Correa Administration’s Yasuní-ITT Initiative
On April 4, 2007 Ecuadorian President Rafael Correa, a U.S.-trained economist (Koenig 2008), signed a memorandum with Brazilian President Lula granting the Brazilian company Petrobras the right to extract oil from the ITT block (Backer 2010). A few days later Alberto Acosta, an economist and the Minister of Energy and Mines of Ecuador at that time, introduced an alternative proposal for the block called the Yasuní-ITT Initiative (Backer 2010). This kind of proposal is unprecedented, and relies upon the idea that the world should compensate Ecuador for a portion of its lost profits in return for rainforest preservation. The plan was launched in June of 2007 (“Ecuador Decree Keeps Oil Companies at Bay” n.d.) in response to public opposition to the drilling activity that Petrobras was scheduled to begin (Bass et al. 2010) and was co-opted by the United Nations Development Programme (UNDP) (Engel 2010). Then, the Correa administration had to begin gathering support for this idea.
In doing so, Correa traveled to the oil town of Coca in July 2007, declaring “Oil has brought us more bad than good. We need to do something about it.” In September of the same year Correa presented the Yasuní-ITT Initiative to the United Nations (meeting to discuss climate change) proclaiming, “We’re ready to make this great sacrifice.” He then went on to request global collaboration in “…inaugurating a new economic logic for the 21st century, where we compensate the production of value and not only the production of commodities.” The Ecuadorian government then created a committee in charge of drafting the initiative, and some European nations began to pledge donations. (Backer 2010) 10
However, Correa had a change of heart in early 2010 (Backer 2010) because he did not feel comfortable with the international community’s control over the final destination of funds donated to the Initiative (Tello 2010). He canceled his trip to Copenhagen for the climate change talks, publically denounced the plan, and consequentially lost most members of his initiative- drafting committee (Backer 2010). The new Minister of Nonrenewable Natural Resources, Wilson Pastor, then announced that Petroamazonas5 would be moving exploratory equipment to the ITT block (Backer 2010). However, in March of 2010, Correa reversed his opinion once again and began putting together a new drafting committee. In April, the Ecuadorian government announced a July 2011 deadline (which has now been extended) for donations to the UNDP Trust Fund set up for the Yasuní-ITT Initiative (Backer 2010). The deal was back on.
On August 3, 2010, the Ecuadorian government and the UNDP signed the “Ecuador Yasuní-ITT Trust Fund.” The Multi-Donor6 Trust Office of the UNDP would administer the funds and guarantee financial transparency. The fund consists of two windows: 1) the Capital Fund window, set up to fund projects in renewable energy development (hydroelectric, geothermal, wind and solar), and 2) the Revenue fund window, created to support policies in concordance with National Development Plans for conservation, reforestation, social projects, energy efficiency, research, and innovation. The Yasuní Fund has been structured to make sure that financing and implementation of projects are carried out with full transparency and accountability. Each project approved for funding must also fit appropriately into the Yasuní-ITT Initiative priority program as outlined in the Ecuadorian National Development Plan7 (Climate Alliance 2010).
The Initiative outlines expected contributions from potential partner countries in proportion to their GDP levels, which tend to correlate with carbon dioxide emission levels as well (Adoum et al. n.d., 24). The largest donations were expected from those countries listed in
5 Petroamazonas is an Ecuadorian oil company. 6 Major donors include the governments of Chile and Spain (Diario Hoy 2012). 7 The Ecuadorian National Development Plan entitled the "2009 - 2013 National Plan for Good Living: Building a Plurinational and Intercultural State", was created to enhance the Constitution of 2008. It is based on an “ aims and results-oriented” style of management “… in which policies and programs become appropriated, coordinated, and shared by the different public institutions involved in the implementation and evaluation of policies.” (Gobierno Nacional de la República del Ecuador n.d.) 11
Annex I8 of the Kyoto Protocol9 (Adoum et al. n.d. 24) but would be accepted from anyone, including NGOs and individuals. Yasuní Guarantee Certificates (CGY) would be issued by the state to all donors, in amounts equivalent to the number of US dollars contributed (Climate Alliance 2010), as insurance that the oil would remain underground permanently (Adoum et al. n.d., 39). Included on the CGYs would also be the number of metric tons of carbon dioxide avoided in relation to the size of the contribution “…according to the price of the European Union Allowances on the Leipzig Carbon Market” (Climate Alliance 2010).
The Initiative also includes a “debt-for-conservation swaps” option for potential donors to the fund (Adoum et al. n.d., 3). It is important to note that Ecuador has an external debt of $10 billion, and that if carbon credits were earned for avoided emissions by the choice not to drill, these $4.36 million worth of carbon credits could potentially be swapped with foreign investors, creating a win-win exchange (Finding Species n.d.). If a future Ecuadorian government decided to exploit this oil, they would be required to repay bondholders plus interest, the State would lose ownership over the fund, and Ecuador would no longer receive payments (Adoum et al. n.d., 42).
According to one conservative estimate, drilling would lead to $7.25 billion of income for Ecuador (Adoum et al. n.d., 4), which is about 10% of Ecuador’s GDP (Gallagher 2009). President Correa has asked the world to pledge half of this amount to Ecuador over the next ten to twelve years (about $350 million each year [Finding Species n.d.]) in hope of meeting the $3.6 billion final goal by 2024 (Garcia & O’Callaghan 2011). Additionally, the Correa Administration aspires to eventually receive donations equal to 100% of the foregone oil revenues if possible in order to remove any economic incentive attached to oil exploration in the ITT oilfields for future governments (Adoum et al. n.d., 42). Correa also created a new deadline for $100 million of pledges by the end of 2011 (Bronstein 2010). The Ecuadorian government announced that if the
8 Annex I includes “…the industrialized countries that were members of the OECD (Organisation for Economic Co- operation and Development) in 1992, plus countries with economies in transition (the EIT Parties), including the Russian Federation, the Baltic States, and several Central and Eastern European States (United Nations Framework Convention on Climate Change n.d.-b). 9 The Kyoto Protocol is “…an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions.” (United Nations Framework Convention on Climate Change n.d.-a) 12
$100 million was not received by December 2011, they would allow bidding on the fields to begin, an alternative also known as “Plan B”10 (Bronstein 2010).
For the Yasuní-ITT Initiative to be given a chance to succeed, many factors needed to come together by December 2011. Having gained strong local support from the Ecuadorian public, President Rafael Correa had to garner greater international support for this plan at his UN presentation in September 2011. Assuming that this could be achieved, the Ecuadorian government must continue to co-operate with the UNDP by keeping their word to leave the ITT oilfields untouched and by directing funds to agreed-upon projects in order for the program to continue. Lastly, international support for the initiative must persist over the next ten years. If these conditions are not met, Plan B could be enacted.
According to an article in the Ecuadorian newspaper Diario Hoy from August 16, 2011 (136 days before the $100 million deadline), the $40 million that President Correa donated personally made up 48% of the funds that had been pledged to the Initiative at that point (2011). One Chinese citizen and resident of New York City, Chen Yue, had pledged $150 thousand to the project, and a list of nations including (but not limited to) Peru, Belgium, Italy, and Spain, were expected to donated up to $41.5 million (Diario Hoy 2011) . According to the UNDP and CFN Trust, civil contributions raised $1,657,021 and telethons were planned for the months following (Diario Hoy 2011).
In total, this amounted to $84 million of pledged contributions out of the $100 million needed before the end of 2011 for the plan’s success (Diario Hoy 2011). Of course, many of these figures were just pledges and had not been actually added to the trust fund; any changes could have seriously threatened the success of the Initiative. Luckily, on December 30th, 2011, the Ecuadorian government announced that the goal had been met; $117 million worth of contributions had been raised (Garcia & O’Callaghan 2011). Table 1 displays some of the donations that had been made as of March 2012 (all of which, except for Ryohin Keikaku Co. Ltd’s donation, were pledged by the December deadline).
10 “Plan B” is a term that has been adopted in the public sphere to refer to the drilling by Petrobras or Petroamazonas that would have occurred in the ITT oilfields had the Yasuní-ITT Initiative never been proposed and that still could occur if it does not succeed. If the Initiative does not receive sufficient funding in the future, the Ecuadorian government could open the fields up to bidding by oil companies, commencing the so-called “Plan B”. 13
Table 1: Donors and Donations
Donors Amount Government of Spain $1.4 million The Regional Government of $409,277 Wallonia (Belgium) Ryohin Keikaku Co. Ltd (Japan) $200,000 Earth Day Network $153,041 Odebrecht S.A. $129,975 Government of Chile $100,000 Government of Colombia $100,000 Government of the Republic of $100,000 Georgia Government of Turkey $100,000 World of Kindness (Russia) $100,000 Everfresh $50,000 Based on data from (United Nations Development Group 2012)
By January 2012, a New York investment banker had pledged her salary for the year while donations came in from celebrities such as Al Gore and Leonardo DiCaprio (Vidal 2011). The Inter-American Development Bank also donated $1 million (Diario Hoy 2012) and Germany pledged $48 million in “technical assistance” directly to the Yasuní National Park (Muñoz 2011). Meanwhile, former Italian Prime Minister, Silvio Berlusconi, despite criticism, wrote off $51 million of Ecuador’s $10 billion external debt for his country’s contribution (Vidal 2011). The next big fundraising goal set by the Ecuadorian government is an additional $580 million by the end of 2013 which, if not met, could cause the project to be called off according to the head of the Yasuní-ITT Initiative project, Ivonne Baki (Garcia & O’Callaghan 2011).
If successful, the Yasuní-ITT Initiative will contribute to protection of the world climate, rainforests and biodiversity, and human rights according to Climate Alliance. The organization outlines three ways the Initiative will help to fight global climate change: 1) the avoidance of 407 million tons of carbon dioxide emissions, 2) conservation of rainforest that serves as a “carbon 14 sink”11 and 3) energy change in Ecuador funded by investments from the Yasuní fund towards developing renewable energy (Climate Alliance 2010). The Initiative could protect one of the world’s most bio-diverse sections of rainforest as well as allowing for the continuation of indigenous lifestyles and autonomy.
Research Questions
I first thought about writing my thesis on the topic of oil extraction in the Yasuní National Park while floating down the Tiputini River (which runs along the park border) on my way to the Tiputini Biodiversity Station12. There is no other place like the Amazon, and the sense of wonder I experienced while watching river dolphins leap out of the water and spider monkeys play in the trees above is of the kind that can inspire some of humanity’s best qualities; humility, kindness, and curiosity. The preservation of such a resource is important for this reason alone, but more tangible motivations are present as well. One way the Ecuadorian government has tried to provide this preservation is via the proposal of the Yasuní-ITT Initiative.
When a vast quantity of oil was found in the ITT block of the Yasuní National Park, the Ecuadorian government started to discuss bids for the right to extract with oil companies. As a country with high poverty rates and a high economic dependence on oil export revenues, Ecuador has a lot of financial incentive to extract this oil. However, because the area contains unmatched biodiversity and many natural gems, there is great concern about the effects drilling would have on the land surrounding the ITT block. Ecuador faces a choice: economic revenues or ecological conservation. The Yasuní-ITT Initiative represents an attempt to resolve these contradictory needs, in a way that could enhance the effectiveness of the Kyoto Protocol, making conservation and the protection of human rights economically feasible for this developing nation.
In exploring this dilemma, three main questions arise about the environmental, economic, and developmental implications of the Yasuní-ITT Initiative. What are the economic
11 Previously defined as an area, often rich in vegetation, that is capable of absorbing some of the CO2 produced by human activities (Vogel 2010, 16). 12 The Tiputini Biodiversity Station was founded through the partnership of Boston University and the Universidad San Francisco de Quito, where I was studying, in order to further research on the species and biodiversity of the area. 15 consequences and tradeoffs of the Yasuní-ITT Initiative and of drilling in the ITT oil fields (also referred to as Plan B)? How might the Yasuní-ITT Initiative serve to enhance the environmental work of the Kyoto protocol? What role might the Yasuní-ITT Initiative, and policies like it, play in the promotion of economic development in Ecuador and other bio-diverse, developing nations?
These questions will be explored through the compilation of relevant data and analyzed in discussion of environmental economics concepts of carbon abatement, the General Theory of Second Best, and the developmental theory of a “resource curse” experienced by many developing economies. These concepts will further the understanding of how environmental problems (such as excessive carbon dioxide emissions) interact with international economics and policy (such as the Kyoto Protocol) and domestic development in the context of the Yasuní-ITT Initiative. These concepts provide the framework for a more complete view of the economic consequences of the Initiative as well as show how they may support both environmental protection and the growth of developing nations.
16
BACKGROUND
The International Panel on Climate Change and a “new economic logic”
In analyzing issues of natural resource allocation and economics, a review of recent climate change and environmental politics can be helpful. To provide a frame of reference, the International Panel on Climate Change13 recommended in 1990 that emissions be cut by 60% to achieve a system in which the world could continue to operate sustainably within the carbon cycle (Vogel 2010, 56). Since then, the majority of the world’s industrialized nations have instead increased their carbon emissions. This trend highlights a widespread failure to live within natural limits, despite technological advances. Today, developed countries use 70% of the world’s energy to support only 30% of the world’s population, leaving developing countries supporting 70% of the world population on only 30% of its energy (Climate Alliance 2010).
These numbers shed light on the distributive issues involved in energy consumption, but the sheer quantity of energy consumed from non-renewable sources has created a problem of its own. The burning of fossil fuels contributes greatly to carbon dioxide emissions—a driving force of climate change. Even Richard Muller14 found recently in a study of his own (funded in part by the Charles Koch Foundation15) that the phenomenon is very real (Associated Press 2011). Muller has said, “Greenhouse gases could have a disastrous impact on the world” and concedes that society should reduce the carbon dioxide emissions caused by fossil fuel use (Associated Press 2011). Not only should the world reduce overall fossil fuel use as a way to combat climate change, but trends show that as time goes on, consumers may have no choice. As shown Figures 5 and 6, the rate of oil discovery has been out of line with the rate of worldwide production for quite a few years now. Many experts predict that the end of oil is near. If they’re right, weaning the economy off oil will be essential to financial survival.
13 The International Panel on Climate Change (IPCC) is intergovernmental body of scientists created to review and analyze scientific, technical and socio-economic information produced worldwide in order to improve global understanding of climate change (Intergovernmental Panel on Climate Change n.d.) 14 Richard Muller is a prominent physicist who, up until recently, was a major climate change skeptic (Associated Press 2011). 15 The Charles Koch Foundation is a major funder of skeptic organizations and the Tea Party. The Koch brothers run a company that works with oil and other large greenhouse gas producing industries (Associated Press 2011). 17
Figure 5: Oil Discovery Trend
(Harper 2004)
Figure 6: Net Difference- Additions to World Oil Reserves & Oil Consumption (Annually)
(Hirsch 2005, 4) 18
However, as economist Nicolas Stern16 asserts, in The Stern Review, “Even if the rich world takes on responsibility for absolute cuts in emissions of 60-80% by 2050, developing countries must take significant action too” (Adoum et al. n.d., 7). This is, in part, because although 65% of greenhouse gas emissions come from industrialized countries, deforestation accounts for 18% of total emissions and is mainly happening in developing tropical countries (Adoum et al. n.d., 10). The Yasuní-ITT Initiative may provide a model for how developing nations can cut emissions and prevent deforestation without sacrificing economic development. To that effect, President Correa has said of the Initiative that, “This would be an extraordinary example of global collective action that would not only reduce global warming, which benefits the whole planet, but also introduce a new economic logic for the XXI Century, which assigns a value to things other than merchandise” (Adoum et al. n.d., 7).
The “new economic logic” President Correa speaks of would require a change in perspective and in method. In his book The Economics of the Yasuní Initiative Joseph Henry Vogel pulls from an article published in Scientific American by development economist Jeffrey D. Sachs quoting contributing nuclear scientists in which they assert that “If the great powers continue to look for solutions in the area of science and technology only, the result will be to worsen the situation” (Vogel 2010, 14). Aldo Leopold frames the situation well in his book A Sand County Almanac when discussing advances in agricultural technology, writing, “…few educated people realize that the marvelous advances in technique made during recent decades are improvements in the pump, rather than the well” (1970, 260). A “new economic logic” may be the key to a more responsible management of this “well” in the developing world.
In Ecuador, the desire to value nature and the environment in a new way comes, in part, from the nation’s historical experience with oil drilling. As such, an introduction to the relationships formed between Ecuador and the oil industry over the years may promote a better understanding of the impetus for the Yasuní-ITT Initiative. One recent and well-known case from this history comes from Texaco’s experience drilling for 28 years in Ecuador’s northern Amazon.
16 Lord Nicholas Stern is a British economist and professor who holds the IG Patel Chair of Economics and Government, is the Director of the India Observatory and Chairman of the Asia Research Centre as well as the Chairman of the Grantham Research Institute on Climate Change and the Environment (The London School of Economics- Asia Research Centre 2010). 19
Texaco/Chevron
The Texaco Petroleum Company began oil exploration and production in the Oriente in 1964; founding a town they named “Lago Agrio” after Texaco’s hometown of Sour Lake, Texas. According to Texaco this exploration was done in partnership with Petroecuador, the Ecuadorian state oil company, through a 28-year concession agreement. When the agreement ended in 1992, Texaco had ceased all oil operations in Ecuador. Chevron (which has since bought Texaco) asserts that during the Texaco Petroleum Company’s years of operation in Ecuador the company complied with all laws and environmental regulations. Chevron also says that the company engaged in an extensive clean-up process before leaving Ecuador to eliminate any chance of lasting ecological damage. (Chevron Inc. U.S.A. n.d.)
Nonetheless, pollution due to drilling activities in the 1990s may have caused the degradation of both human and environmental health in the surrounding areas of the Texaco extraction site in the Northern Ecuadorian Amazon (Caselli 2011). As a result, thirty thousand community members (including five different Amazonian tribes) filed a class-action lawsuit in 1993 (Caselli 2011). Plaintiffs’ lawyers filed the lawsuit against Texaco Inc. in the United States, demanding compensation of environmental and health damages experienced by the community (Chevron Inc. U.S.A. n.d.). However, the lawsuit was dismissed numerous times by the U.S. court system,17 and in May of 2003 plaintiffs’ lawyers brought the case to court in Ecuador (Chevron Inc. U.S.A. n.d.).
The plaintiffs argue that Texaco is responsible for environmental contamination in the area. According to the website of a campaign called “ChevronToxico” run by Amazon Watch18, at the height of their production, Texaco was dumping 4 million gallons of formation waters19 (a by-product of drilling) into the rivers of the Oriente each day. This practice had been outlawed in major US oil states decades before Texaco operations in Ecuador began, but by employing it the company is estimated to have saved $3 per barrel of oil extracted (Amazon Watch n.d.-a).
17 The case was dismissed in U.S. courts many times because judges felt that the U.S. court system was not the appropriate place for this dispute to be settled (Chevron Inc. U.S.A. n.d.). 18Amazon Watch is a nonprofit organization founded in 1996 to “…protect the rainforest and advance the rights of indigenous peoples in the Amazon Basin.” (Amazon Watch n.d.-a). 19 Formation waters are by-products of drilling (Amazon Watch n.d.-b). 20
Donald Moncayo, of the Amazon Defense Coalition20, says that there are over 1,000 waste pits that Texaco created but never lined, free to leak toxic substances for many years (Caselli 2011). According to the Rainforest Action Network21, Texaco alone spilled 17 million gallons of crude oil and opened more than 2.5 million acres of forest to colonization through road construction in its thirty years of operation in Ecuador (Donahue 2003). Texaco did conduct a clean-up process in 1995, but according to Climate Alliance22 this remediation included less than 1% of the company’s former site area and utilized inadequate clean-up practices like burning off crude by- products into the air and filling open pits with dirt (2010).
According to Amazon Watch, the water and soil samples from all 18 well sites showed overwhelming evidence of illegal levels of contamination and toxicity (Butler 2011). The plaintiffs claim that Texaco knowingly dumped 18 billion gallons of toxic wastewater in northeast Ecuador between 1964 and 1990 (Caselli 2011). They also say that the affected area consists of 1,700 square miles and that the contamination has resulted in widespread health problems including cancer and birth defects (Caselli 2011). A court-appointed expert reported that cancer rates in the area were 130% higher than in the rest of the Ecuadorian population (Caselli 2011). Chevron has also been accused of trying to intervene in the judicial process through the use of fraudulent sampling techniques and political maneuvers in Washington, D.C. (Amazon Watch n.d.-c).
Chevron, however, claims, “Plaintiffs’ attorneys and activist groups inaccurately attribute virtually every health problem in the Oriente region to oil production activities” (Chevron Inc. U.S.A. n.d.). Texaco also argues that the primary causes of disease in the Oriente region are independent from oil production and include such issues as poverty, lack of access to clean
20 According to their website, the Amazon Defense Coalition is “…a part of a regional, national and global struggle for environmental and collective rights in the Ecuadorian Amazon” (Amazon Defense Coalition n.d.). The group represents local residents in the ongoing case against Chevron (Caselli 2011). 21 The Rainforest Action Network was founded in 1985 and since then has worked to “…protect rainforests and the human rights of those living in and around those forests” by “…transforming the global marketplace through education, grassroots organizing, and non-violent direct action” (Rainforest Action Network n.d.). 22 Climate Alliance was founded in 1990 and is “…the European network of local authorities committed to the protection of the world's climate. The member cities and municipalities aim to reduce greenhouse gas emissions at their source. Their allies in this endeavor are the Indigenous Peoples of the rainforests in the Amazon Basin.” (Climate Alliance n.d.).
21 water, poor sanitation, and insufficient infrastructure (Chevron Inc. U.S.A. n.d.). According to Chevron, audits done by AGRA Earth & Environmental Ltd. and Fugro-McClelland (FM) concluded that Texaco Petroleum operated responsibly and that no significant or enduring environmental damage could be linked to the company’s former oil operations in the area (Chevron Inc. U.S.A. n.d.). Chevron also says that Texaco signed an agreement with the Ecuadorian government in the 1990s releasing Texaco from any further obligation after they had completed an environmental remediation process (Caselli 2011).
Nonetheless, the trial was held in Ecuador and was “settled” on February 14th of 2011. Chevron was given a fine of $9 billion23 (Caselli 2011) and was required to make public apologies (Wyss 2012). Chevron claimed this ruling was “illegitimate” and filed an appeal, while the plaintiffs were also unsatisfied with the ruling, claiming they were due more compensation24 (Caselli 2011). Nonetheless, this ruling set a new precedent for the size of court-ordered environmental awards (ExxonMobil was fined $5 billion for the Alaska oil spill in 1989) (Caselli 2011). It was also historic in that a group of indigenous people has never before won a case against a U.S. company for environmental crimes (Amazon Watch, n.d.-b). However, after the company refused to deliver a public apology, the fines placed on Chevron were doubled to $18 billion (Wyss 2012).
According to James Craig, a spokesman for Chevron in Latin America, the company did not apologize because to do so would have required that the company make a false admission of responsibility for environmental problems that they did not cause (El Comercio 2012). Chevron then proceeded, in March 2011 (Stempel 2012), to obtain a ban from U.S. District Judge Lewis A. Kaplan that blocked enforcement of the judgment worldwide until he could conduct a trial to determine whether the $18 billion judgment was fraudulent (Neumeister 2012). Chevron had been seeking protection under a New York state law entitled the Recognition Act that regulates the acknowledgement of money judgments made abroad (Stempel 2012). However, according to Judge Gerard Lynch this law was intended to “…provide for the enforcement of foreign judgments, not to prevent them” (Stempel 2012).
23 This fine includes $5.4 billion for soil restoration, $2.2 billion for public health, $600 million for the decontamination of underground water sources, and other amounts for wildlife restoration and community- strengthening (Caselli 2011). 24 A court-appointed expert estimated the true cost of the damages to be $27 billion (Caselli 2011). 22
After an appeal by the Ecuadorian plaintiffs, a three-judge panel (which included the aforementioned Judge Lynch) of the 2nd U.S Circuit Court of Appeals ruled in January 2012 that Judge Kaplan had no authority “to dictate to the entire world which judgments are entitled to respect and which countries’ courts are to be treated as international pariahs” (Neumeister 2012). He could have banned the plaintiffs from moving against Chevron in New York, but this is something they are not likely to attempt anyway (Neumeister 2012). Fajardo, a plaintiffs’ lawyer, feels that Chevron ‘…wants to avoid a precedent that could serve for other communities around the world” (Wyss 2012). Fajardo also asserted that since Chevron currently has no operations in Ecuador the plaintiffs are ready to seize company assets in other countries if need be (Wyss 2012).
Regardless of who is to blame, the externalities that came from Texaco’s drilling in the Amazon were tragic and have even been referred to as the “Rainforest Chernobyl” (Amazon Watch n.d.-b). The story of Texaco in the Ecuadorian Amazon is one of many from decades’ worth of “dirty industrialization”25 gone wrong. Even without spills or leaks, oil operations and the communities in which they are located have experienced a variety of difficulties, all the while enabling the world’s reliance on fossil fuels like oil, contributing to the atmospheric carbon “stock26”, and furthering the “resource curse27” experienced by many developing nations. Nonetheless, drilling in the Amazon is still viewed as a lucrative endeavor for oil companies and has led to the creation of an innovative proposal, the Yasuní-ITT Initiative.
25 “Dirty industrialization” is broadly understood as the high-pollution, production-based method of economic development commonly used by now wealthy Western nations in the 19th and 20th centuries and representing the conventional model for those nations currently striving to reach “developed” status. 26 According to the Food and Agriculture Organization (FAO) of the United Nations a “carbon stock” is “The quantity of carbon in a ‘pool’, meaning a reservoir or system which has the capacity to accumulate or release carbon.” (Food and Agriculture Organization of the United Nations 2005) So, the “stock” in this case, refers to the concentration and quantity of that particular substance in the air at any given time. For the purposes of this discussion, the term “flow” refers to the carbon dioxide emissions into the atmospheric stock at or over a particular time period. 27 The theory of resource curse, as discussed later in this paper, argues that high oil-export revenues in developing nations are often associated with “inequitable resource distribution, import dependency, corruption and state repression” (Zalik 2006). 23
Oil and the Environment
In order to understand the implications of drilling in the ITT oil block, the environmental effects of drilling must be considered. First, when one barrel of oil is drilled, it “produces”, or wastes, 4 barrels of water, an essential (and scarce) resource for life (Finding Species n.d.). This water is then usually re-injected into the ground, interfering with natural groundwater flows and disturbing ecosystems (Finding Species n.d.). This would mean that if there were 850 million barrels of oil within the ITT fields, drilling would displace at least 3.4 billion barrels of water, and presumably affect the ecosystems dependent upon it.
The extraction of oil has also been known to release toxic by-products into local water systems and broken pipelines can lead to unrelenting oil spillage (Butler 2011). In some situations, by-products are released directly into nearby streams or rivers; other times, toxic substances are stored in open waste pits that may bleed into the surrounding soil and waterways (Butler 2011). A severe oil spill in the Amazon could be devastating given the region’s complex water systems and constant rainfall. As Ivonne Baki pointed out in an interview with Diario Hoy, the world does not yet have sufficient technology to extract resources safely in places, like Yasuní, that are home to very high degrees of biodiversity and ecological complexity (Muñoz 2011). Rhett A. Butler compares a spill in the Amazon to that of Exxon Valdez in Alaska saying, “The Exxon Valdez oil spill was difficult enough to clean up even though it was limited to rocky beaches; addressing a similar-sized spill in the Amazon would be magnitudes more complicated.” Not to mention costly. (Butler 2011)
Road construction also leads to colonization and the fragmentation of important, complex rainforest ecosystems. Furthermore, roads allow for through-traffic, which often leads to the damage of the area’s forest as a result of practices such as slash-and-burn agriculture, livestock grazing, hunting, and logging. Many oil companies also participate in a process known as flaring in which by-product natural gas is burned off into the atmosphere, adding pollutants to the air and sometimes resulting in dangerous forest fires28 (Butler 2011).
28 This happened in Bangladesh in the late 1990s at an Occidental well at which flaring was thought to be the cause of a large forest fire (Butler 2011). 24
As described above, the side effects of oil extraction have their own costs; however, these costs are often not taken into account in the pricing of natural resources on the global market. As a result, the current market system allows these practices to go on without cost internalization, leading to inefficiency in the market and creating a vicious cycle. This happens, in part, because environmental degradation, reductions in quality of life, and the loss of biodiversity, are often very difficult to value monetarily. As a result, attempts to remediate these problems are tricky to work into the international economic system in an effective way. For this reason, President Rafael Correa and many other like-minded economists are calling for the introduction of a “new economic logic”, as Correa put it, into the way the international community manages the global economy.
25
CARBON ABATEMENT AND THE YASUNI-ITT INITIATIVE
To understand the economic consequences of the Yasuní-ITT Initiative and of Plan B (drilling), the estimated costs of each option must be considered. As previously mentioned, natural resources such as the Yasuní National Park are difficult to “value” economically as their worth can vary depending on their renewability, their location, their potential industrial uses, and many other factors. Kathleen McAfee29 identifies three specific types of values that can be placed on nature: “subsistence values”, “exchange values”, and “symbolic” values” (1999, 139). The incorporation of these three into a free-market economy model would require the first and the third values to be much more easily quantifiable. “Exchange values”, however, can be applied to carbon abatement and ecosystem services, providing a way to compare the costs of drilling and preservation.
Before discussing the costs of carbon dioxide emissions and abatement, it is important to understand the distinction between stock and flow, as working now to reduce the stock over time is the key to both environmental and economic savings in the future. The “stock” of carbon dioxide in the air is the source of the majority of carbon dioxide related health and environmental problems. The “flow” refers to the rate of emissions. Changing the flow today will lead to a less harmful stock in the future. The more carbon emissions the atmosphere receives; the greater a “carbon pool”30 is created. The more trees that are cut down, the smaller the aforementioned “carbon sink” to offset this pool, and the less “dirty industrialization” the world can afford to continue anywhere. Saving the world’s rainforests from oil extraction could prevent carbon dioxide emissions and deforestation, the latter being especially important in Ecuador where, at an annual rate of 1.4%, deforestation is occurring at one of the fastest paces in all of Latin America (Adoum et al. n.d., 30).
Both deforestation and carbon dioxide emissions must be reduced in order to the slow growth of the atmospheric carbon pool. Garrett Hardin31 would classify a carbon pool (and likewise, a carbon sink) as a classic example of an open access resource (Vogel 2010, 17), and it
29 Of the University of California at Berkeley Department of Geography (McAfee 1999) 30 A carbon pool” would be “…a reservoir or system which has the capacity to accumulate or release carbon. (Food and Agriculture Organization of the United Nations 2005) 31 Garrett Hardin (1915-2003) was a microbiologist and ecologist most famous for his article “The Tragedy of the Commons” that has been widely accepted as a “… fundamental contribution to ecology, population theory, economics and political science.” (The Garrett Hardin Society 2003) 26 would be hard to argue that any one nation should have a greater claim than another to the atmosphere as a natural resource and carbon sink. McAfee, however, argues that while most would think of the atmosphere as a global resource from which no party’s use can be excluded, “…industrialized countries have already appropriated most of its ‘benefits’ by saturating the atmosphere beyond the limit of sustainability with ozone-depleting chemicals and greenhouse gases (GHGs)” (1999, 142).
However, the reduction of carbon dioxide emissions anywhere creates a global public good as both pollution levels and the need for abatement expenditures are reduced. If emissions are not reduced, costly carbon abatement must be done in the future to reduce the harmful effects of the atmosphere’s carbon stock. The carbon emissions that would be avoided with the success of the Yasuní-ITT Initiative amount to an estimated 375 million tons, more than the 373 million tons emitted in an entire year in France and more than the 332 million tons emitted each year by Brazil. This amount is also equivalent to the amount of carbon dioxide Ecuador emits in 13 years. (Adoum et al. n.d., 18). On the other hand, if Ecuador chose to drill (Plan B) in the ITT oilfields, carbon dioxide emissions from extracting and burning the oil would amount to 375 million tons and emissions from deforestation would amount to 172 million tons, for a total of 547 million tons (Gallagher 2009). In other words, by not drilling and saving this part of the Amazon, the world would save 547 million tons of carbon dioxide emissions. The World Bank estimates the abatement cost of carbon dioxide emissions to be $14-$20 per ton32 (Gallagher 2009).
This would make the abatement cost to the world for these emissions come to between $1.7 billion and $2.4 billion for extraction and burning33 and $909 million for the deforestation (Gallagher 2009). Accordingly, the final bill for the abatement of all 547 million tons emitted could climb as high as $2.6 billion and $3.7 billion (Gallagher 2009). Furthermore, the Amazon has been a resource for the production of new medicines, as well as scientific research, and Earth Economics estimates that the environmental benefits of the Yasuní National Park have a net present value of $9.89 billion (Adoum et al. n.d., 29). When including the $9.89 billion worth of environmental resources that would be forever lost, the total value of environmental damages
32 This is similar to the range defined in the U.S. Waxman-Markey legislation (Gallagher 2009). 33 Other estimates place this number as high as $7.19 billion (Adoum et al. n.d., 18) 27 caused by drilling could easily be upwards of $10 billion. Again, the value of abatement avoided can be viewed as billions of dollars’ worth of public goods, since all nations benefit from reduced externalities and improved market efficiency. Meanwhile, the Correa Administration is asking for around $3.6 billion to avoid all of this.
Figure 7: Net Economic Benefits- Yasuní-ITT Initiative vs. Plan B
0.5
0 1 2 -0.5 Net Benefits in Billions of -1 $USD (taking into account -1.5 Yasuni-ITT only costs of implementatio -2 Plan B n and CO2 emissions for -2.5 each option) -3
-3.5
-4
Based on data from (Gallagher 2009)
Figure 8 shows the worst-case scenario for both options through the columns on the left (1) and the best case through the columns on the right (2). It is evident that Plan B (drilling), shown in red, has higher costs in either situation. As shown in Figure 8, when only implementation costs and carbon abatement costs are taken into account, it is possible for the global community to break even or even benefit (economically) through the Yasuní-ITT Initiative (costs shown in blue). With an expenditure of $3.5 billion to implement the Yasuní-ITT Initiative plus a savings of $2.6-3.7 in avoided carbon emissions, the net difference (when considering only these factors) ranges from a loss of $0.9 billion to a gain of $0.2 billion. This is more favorable than the $2.6-3.7 billion in costs associated with drilling and means that in the worst case the Yasuní-ITT Initiative would save $2.8 billion and in the best case would save $2.6 billion plus a gain of $0.2 billion. Of course, a number of situations could occur between these 28 points, but at either extreme, the Initiative would be $2.8 billion cheaper than Plan B. This occurs because of the cost implications of carbon abatement from the deforestation, oil production and burning associated with Plan B. This shows that the Yasuní-ITT Initiative will effectively pay for the majority, if not all, of its own cost. However, these calculations do not take into consideration other important economic factors, like the oil revenue foregone by Ecuador with the Yasuní-ITT Initiative or the loss of ecosystem services associated with Plan B.
If the Yasuní-ITT Initiative were successful Ecuador would, of course, be forfeiting half of the $7.25 billion in projected oil revenues. This loss is not factored into the comparison above because it would not be distributed globally as much as the costs of implementation and carbon abatement would. Moreover, Yolanda Kakabadse34 has asserted that participation in carbon markets via the Yasuní-ITT Initiative would be as lucrative for Ecuador as the oil market has been, once environmental and infrastructure costs associated with drilling are taken into account (Kraft 2009). Kakabadse also feels that Ecuador will “win with the carbon market more than with the oil market” in every sense (Kraft 2009).
Additionally, Ecuador would be preserving a highly valuable natural resource, as nature can also be valued according to the ecosystem services it provides. This sort of “natural resource accounting” would include the “worth” of an area based on what it provides economically when kept intact. For example, the flood control values of a public park can be put in monetary terms and considered when determining the economic worth of an area. In a presentation at the Simon Bolivar Andean University in Quito in November of 2007, Martinez Alier stated that, “The environmental benefits of Amazon ecosystems – and their enormous biodiversity – are immeasurable from an economic point of view” (Adoum et al. n.d., 29).
Moreover, according to an interview published in Diario Hoy with Ivonne Baki, Nobel Peace Prize-winning scientist Eric Chivian claims that medicines to treat every modern disease can be found within the area (Muñoz 2011). According to Baki, the income generated by this and other investigations of the area’s “bioconocimiento”35 would be much greater than the income that results from extracting oil (Muñoz 2011). In this case, the $9.89 billion in ecosystem
34 Yolanda Kakabadse is the former Environment Minister of Ecuador and member of the Presidential Commission on Yasuní (Kraft 2009). 35 “Bioconocimiento” translated into English means, literally, “bio-knowledge” (my translation). 29 services found within the Yasuní National Park are not factored into the losses associated with Plan B above, but they are certainly worth keeping in mind.
Furthermore, Carlos Larrea36 has estimated the environmental costs37 of oil drilling in the ITT oilfields to be at least $1.25 billion (USD) in present terms (Adoum et al. n.d., 29). This estimation does not include many other potential costs of oil drilling such as spills, local pollution, and the degradation of public health (Adoum et al. n.d., 29). Even without the saved costs from reduced carbon emissions and avoided deforestation; the estimated value of these environmental resources at $9.89 billion plus the $1.25 billion of avoided environmental costs mentioned above far outweigh the $7.25 billion the oil is currently worth to Ecuador (Adoum et al. n.d., 4). While it is likely that direct benefits of the ecosystem preservation would be felt locally, the preservation of biodiversity, clean air, and these natural resources are important for the global community as well.
In return for $3.6 billion from the international community and a forfeit of $3.6 billion in potential revenues by Ecuador, a globally important ecosystem will be preserved, human rights will be protected, and funds will be created to support the development of alternative energies from which all could benefit. If the costs of preservation were higher than the costs to society of extraction, the Yasuní-ITT Initiative would not make sense. As described above, however, the estimated costs of extraction are greater than the costs of preservation. This is not reflected in the price of gasoline in many places because the market price (as previously noted) often neglects to take into account environmental costs, such as the cost of carbon abatement or the loss of important ecosystem services.
36 Carlos Larrea is one of the creators of the Yasuní-ITT Initiative proposal as well as a professor of political economy at Ecuador's Universidad Andina (Kraft 2009). 37 This estimate of costs includes only deforestation, loss of ecotourism potential, and non-timber-related services of the forest (Adoum et al. n.d., 29). 30
THE GENERAL THEORY OF SECOND BEST AND THE KYOTO PROTOCOL
Not only is the Yasuní-ITT Initiative economically worthwhile due to the carbon abatement costs avoided but, in considering the General Theory of Second Best, it becomes clear that the Initiative could enhance the effectiveness of the Kyoto Protocol. The General Theory of Second Best holds that correcting one distortion in the economy while ignoring related distortions can result in a more severely inefficient economy38 than before (Vogel 2010, 20). When applying the General Theory of Second Best to the Yasuní-ITT Initiative, it becomes clear that the Initiative would actually correct one market distortion created by the Kyoto Protocol (lack of a “cap” on non-Annex I countries like Ecuador) by providing another distortion (leaving some of Ecuador’s oil underground) to the effect of making the entire system more efficient (Vogel 2010, 47).
To explain, Ecuador is not required to cap their carbon dioxide emissions at any point by the Kyoto Protocol due to Ecuadorian poverty levels, and this sometimes leads to a distortion in which industry moves from countries with caps to countries without them (like Ecuador). When this happens, carbon is added to the carbon pool from these nations, and the purpose of the Protocol (to reduce overall emissions) is, at least somewhat, defeated. If Ecuador is compensated for not releasing some of this carbon dioxide into the carbon pool, it helps to correct the distortion created by the Kyoto Protocol and makes the overall system more efficient than it had been with one distortion or with none at all (Vogel 2010, 21). Overall, emissions would be reduced as that specific oil would not be extracted and a significant carbon sink would be preserved, enhancing the work of the Protocol.
This phenomenon is often referred to as a “double distortion.” The Kyoto Protocol requires caps in Annex-I countries, encouraging the production of more emissions in non-Annex I nations like Ecuador and creating a policy-induced distortion39. The Yasuní-ITT Initiative reduces both emissions and deforestation in a non-Annex I country, thus re-distorting the inefficiency created by the Protocol and leading to a reduction in worldwide emissions. Furthermore, the Yasuní-ITT Initiative addresses deforestation, making it a more effective and
38 For example, a ban on drilling in one place may lead to more drilling, and emissions, somewhere else. 39 A policy-induced distortion occurs when a policy results in an unintended consequence that may somehow negate its very purpose (Vogel 2010, 21). 31 sustainable policy. While the Yasuní-ITT Initiative is independent from, and designed to function without, the Kyoto Protocol, the General Theory of Second Best suggests that the Initiative could serve to enhance the work behind it.
Even without taking into account the General Theory of Second Best and the ability of the Initiative to create a “double-distortion”, carbon dioxide emissions and environmental degradation would still be reduced through the Yasuní-ITT Initiative. In the short-term, production may increase elsewhere to meet global demand, but crude oil is a non-renewable resource. Additionally, in recent history supply shortages in one area have proved difficult for extractors in other areas to fulfill because of diminishing reserves (Adoum et al. n.d., 42). This means that the decision not to drill in the ITT fields will still create a positive reduction in carbon emissions in the long term. Furthermore, dealing with any shortages sooner rather than later may provide governments and consumers with a greater sense of preparedness for climate change and energy shortages in the long run. Lastly, as discussed further in the “Policy Recommendations” section, initiatives like the Yasuní-ITT Initiative could be created and adopted in developing countries with similar resources to further internalize the damages of natural resource extraction and support the objectives of the Kyoto Protocol without hindering economic development.
32
THE “RESOURCE CURSE”
When I was studying abroad in Ecuador, my ecology professor once asked the class why we thought the most environmentally diverse nations in the world also tended to be some of the poorest. No one had a good answer; nor could we figure out which came entirely first--- had slow economic development allowed for the better conservation of natural resources in poor countries than in other nations? Or had the natural assets of the area somehow hindered industrialization? The idea of a “resource curse40” existing within a system of industrialization and economic development that is heavily dependent on the burning and extraction of fossil fuels may provide an explanation.
At the beginning of the oil boom in the early 1970s, Ecuador’s national debt started accumulating quickly. In 1970 the nation’s debt amounted to $252.2 million, and by 2005 it had grown to $16.8 billion (Butler 2011). According to Michael Ross of the University of California at Los Angeles, oil-rich countries are generally worse off in scores of literacy, malnutrition, child mortality, and the UN Human Development Index because “Unlike agriculture, the oil sector employs few unskilled people. The inherent volatility of commodity prices hurts the poor the most, as they are the least able to hedge their risks. And because the resource is concentrated, the resulting wealth passes through only a few hands—and so is more susceptible to misdirection.” (Butler 2011) This relationship can be observed in many nations, such as Libya where the oil industry makes up 72% of GDP but employs only 2% of the workforce (Gandel 2011). In Ecuador in 2008, the oil industry employed only 2,224 people (Instituto Nacional de Estadística y Censo (INEC) n.d.) of the more than 6 million person workforce (Banco Mundial n.d.).
Climate Alliance also notes a “resource curse” experienced by oil-exporting countries, stating that gross national product per capita growth in OPEC countries decreased on average about 1.3% between 1965 and 1998 while per capita growth in other developing countries (that did not export oil) averaged an increase of 2.2% in the same period (Climate Alliance 2010). In their article for CounterPunch, “Ken Saro-Wiwa, Ten Years Gone”, Sofiri Peterside, Patterson
40 The theory of a “resource curse” argues that high oil-export revenues in developing nations are often associated with “inequitable resource distribution, import dependency, corruption and state repression” (Zalik 2006). 33
Ogon, Michael Watts and Anna Zalik41 write about oil exploration in Nigeria noting that, according to the World Bank, the average personal income of Nigerians was lower in 2005 than in 1960 despite the $350 billion in oil revenues that had been brought into the nation in the same period (2005).
Similarly, while oil provides 60% of Ecuador’s export revenue, growths in exports have not always meant increases in wealth over the years (Kraft 2009). Even with increasing world oil prices from 2002-2006 and a stabilizing economy, Ecuador’s poverty rate persisted at 38% in 2006 (Climate Alliance 2010). As of 2008, about 35% of Ecuadorians were living below the poverty line (Climate Alliance 2010). Furthermore, since the late 1970s, Ecuador’s per capita GDP has grown an average of only 0.75% each year (about half the rate of countries with similar income levels) (Kraft 2009). Is there a connection between the abundance of oil supplies a nation possesses and the degree of poverty its people face?
This could occur because the valuation of oil as a natural resource can be especially challenging. As Zalik explains, petroleum is “…territorially fixed, expensive to move, and non- renewable” (2010). This means that the physical characteristics of oil have a complex relationship with the international market, as well as a role in the socio-political happenings of many oil-rich regions. These aspects of crude oil are not in the control of developing countries, and as a result the economies of these nations are dependent upon such fluctuations, in addition to an array of other vulnerabilities experienced by small, export-dependent economies trying to compete in the global market.
41 Sofiri Peterside and Patterson Ogon work with the Ijaw Youth Council in Port Harcourt, Nigeria while Michael Watts and Anna Zalik teach at the University of California, Berkeley (Peterside, Ogon, Watts & Zalik 2005). 34
Figure 8: Ecuador’s Oil Production and Consumption, 2000-2010
(U.S. Energy Information Administration 2011)
Furthermore, while Ecuadorian production has increased from 2000 to 2010 as shown in Figure 8, national consumption has barely increased (despite significant population growth), suggesting that wealth accumulation has not occurred in a manner proportionate to the increases in oil revenues over time. Furthermore, as Stephen Gandel points out in his article “Where the 1% Lives” in TIME Magazine from January 9, 2012, the International Monetary Fund (IMF) found in a recent study that countries with small income gaps tend to have more stable growth and experience fewer financial crises than nations with high levels of inequality (14). This is not good for the global community, as class disparities may lead to less democratic and stable political systems, making international relations and trade increasingly unpredictable and volatile.
Although Ecuador relies heavily upon oil exports, the endeavor is much less lucrative and sustainable than one might assume. Much of the crude oil, such as the 182,000 barrels that traveled from Ecuador to the United States in 2009 (Finer & Martin 2010), leaves the country only to be refined and later sold back to the Ecuadorian consumers (as well as consumers in the U.S. and all over the world). Like Mexico, who buys refined gasoline from U.S. refineries at five 35 times the price it received for the crude, Ecuador does not receive the economic benefits of the product once value has been added via refinement (Zalik 2009). According to the U.S. State Department, the average estimated price of crude oil exported from Ecuador in 2011 was $73.30 per barrel (Bureau of Western Hemisphere Affairs 2011). The price of refined gasoline per barrel in the same year in Ecuador is about $84.26 per barrel (Trading Economics n.d.). This is a difference of over $10 per barrel. Not only does the nation receive less income for it than many may think, but Ecuadorian consumers must pay a higher price for the gasoline once imported back, suggesting a net “loss”.
Moreover, considering the theory of the “Dutch disease”42, the Ecuadorian economy has not had the opportunity to diversify and grow independently of external conditions because of its over-reliance on petroleum exports (Adoum et al. n.d., 36). The export of primary commodities on the international free market has never aided a nation in becoming a stronger international economic power (McAfee 1999, 146). Furthermore, export-dependent development leads to a situation in which developing nations are subject to the priorities of foreign powers instead of the needs and wishes of their own communities and businesses (McAfee 1999, 147). The tumultuous relationship between Texaco and Ecuador, as previously discussed, provides a good example of some ways in which oil extraction can produce a “resource curse” effect in a developing nation.
Given this new perspective of the implications of environmental decisions through the added lens of carbon abatement costs, there is potential for international policies to work together in ways that benefit both developing nations and the global community. Considering the manner in which many developing countries have seen a lack of progress through economic dependence on resource extraction and exportation, a shift away from fossil fuel dependence may provide a hopeful alternative. For Ecuador, this has required a change in mindset, and may require the gradual out-phasing of the oil industry therein. In a similar manner, other developing nations could begin creating more self-sustaining industries that will support their local economies, minimize environmental damage, and lead the march towards a post-petroleum economy.
42 The term “Dutch Disease” refers to a situation in which large increases of a country’s income (most often associated with natural resource discovery) causes negative effects on its economy. These effects include decreases in the price competitiveness and export of the nation’s other goods as well as an increase in import-dependence (“Dutch Disease” n.d.). 36
TOWARDS A POST-PETROLEUM ECONOMY
A post-petroleum economy would require a new vision of societies and economies around the world; a vision in which fossil fuels are not always the driving factor. With this in mind, an acknowledgement of the fact that change is often incremental is useful as well, and the language used here does not mean to imply that an entirely petroleum-free economy is necessary, urgent, or inevitable. “Towards a post-petroleum economy” is meant to inspire the sort of envisioning that brings public consciousness closer to seeing this possibility as a real one. A better path may involve some use of oil and other fossil fuels for the entirety of mankind’s existence, but based on what has been learned up until now, a trend away from oil dependence and the externalities it brings is worth working towards.
Given the many difficulties developing nations such as Ecuador face in trying to grow healthy economies via resource extraction and export dependence, as well as all that is at risk environmentally in many of these places, a shift away from an oil-addicted global economy may be the smartest route. Furthermore, as mentioned earlier, income gaps can create greater degrees of political and economic instability on the national level. If this trend is extended to the global economy, then smaller income gaps between the rich and poor worldwide could prevent economic crises and encourage growth and stability. In other words, helping developing nations to create income in new ways that are diversified and sustainable creates a global public good. Policies such as the Yasuní-ITT Initiative could do so in a way that does not compromise the clean air and biodiversity upon which the whole world relies.
At the London Summit 2009, U.S. president Barack Obama concluded, “…we must put an end to the bubble-and-bust economy that has stood in the way of sustained growth…” (Vogel 2010, 76). Not only would drilling in the ITT oil fields be an environmental tragedy but it would also be a perpetuation of bubble-and-bust economic patterns and would only hinder the global fight for independence from fossil fuels. The Yasuní-ITT Initiative proposes a way for developing nations to begin “opting out” from this method of development and from dependence on oil.
The Yasuní-ITT Initiative also represents a move towards the protection of human rights. Displacement as a result of oil production activities has already affected the indigenous people of 37 the Ecuadorian Amazon, leading to conflict between groups and divisions within them. Due to the environmental risks, political controversy, and public upset surrounding extraction in the ITT oilfields, oil produced from this area would likely be “high-risk”. The uncertainty involved with high-risk sources, as part of global supply, contributes to speculation that could even cause oil prices to rise. The international community could provide protection for indigenous ways of life in the Ecuadorian Amazon while promoting energy security by supporting the Yasuní-ITT Initiative, which has been called “…a good way of promoting energy justice” by Climate Alliance (Climate Alliance 2010).
Furthermore, as many developing nations have gained wealth in recent years, the long- industrialized nations have felt some pressure about the growing quantities of resources these countries now consume. For example, in 2006 carbon dioxide emissions in China surpassed those of the United States, meaning that China is now the world’s number one carbon dioxide emitter (Vogel 2010, 15). Initiatives like the Yasuní-ITT Initiative could be a step towards preventing or minimizing the increase in carbon dioxide emissions in developing countries that has traditionally accompanied wealth accumulation, while still allowing for economic advancement.
As former U.S. President Bush writes in his memoir, Decision Points, the United States is “addicted to oil” (2010, 347) and so is the global economy. Perhaps the perspective of the oil industry itself would be helpful in understanding the future of oil addiction. According to Shell, the “three hard truths” are “(1) rising demand from India and China, (2) a decline in conventional sources of oil, and (3) concerns about the climactic impacts of greenhouse gas emissions from fossil fuel consumption” (Zalik 2010). Shell also notes that speculation because of these truths has led to increased oil prices that have funded the company’s exploration in the Canadian Tar Sands, an energy endeavor that produces four times the carbon dioxide emissions of oil (Zalik 2010). This sort of market distortion (higher prices that lead to investment in even higher- polluting fuel sources) would not be a concern with the Yasuní-ITT Initiative, while carbon trading (which is endorsed in Shell’s “Shell Energy Scenarios to 2050: An era of volatile transitions”) would remain an option (Zalik 2010).
An example of Shell’s second “hard truth” lies in the fact that Ecuador’s proven reserves will not last more than 30 years (Climate Alliance 2010). Worldwide, it is estimated that oil 38 supply will only last another forty years (Adoum et al. n.d., 42). Because of this, economic diversification in Ecuador and other oil-exporting nations as well as the development of alternative energies worldwide are urgent needs. If in 40 years all other oil reserves have been used except for the ITT oil fields, a successful Yasuní-ITT Initiative means that not only will steps have been taken to develop alternative energies and methods of development, but 547 billion fewer tons of carbon dioxide emissions will have been emitted and an important ecosystem will survive.
Even if oil was expected to be available indefinitely, the climactic effects, wealth distribution issues, and environmental value of Ecuador’s Oriente provide substantial reason for moving beyond oil. Some argue that peak oil has not yet been reached or that all fossil fuels should be extracted to the point of total depletion in the name of cheap energy. In response to these arguments, it should be noted once again that change is almost always incremental. In addition, to avoid economic and social upset, it should also be gradual. So, even if there are infinite quantities of oil or it is best to use all resources up first, why not prepare? Why not seek alternative solutions that allow future generations to breathe cleaner air, if nothing else? The science about pollution, climate change, and the health effects associated with oil extraction is clear. The fight for a cleaner and healthier world, for current and future generations, is worth supporting. Projects such as the Yasuní-ITT Initiative could create a foundation for future change that betters both environmental and social conditions at minimal cost.
The Yasuní-ITT Initiative is not only economically feasible but is likely beneficial, especially when compared to the alternative. The costs of supporting the Initiative would be recuperated through avoided abatement spending and the creation of carbon credits; not to mention the value of the natural treasures that would be preserved. It is also important to remember that pollution reductions may lead to reductions in other costs like lowered health expenses and fewer missed days of work. The Initiative also encourages the development of alternative energies, further reducing carbon dioxide emissions in the future. Extraction risks contamination and deforestation, as well as the loss of ecosystems, habitats, species, and culture. Former US President Bill Clinton has said, “The price of doing the same old thing is far higher than the price of change.” In this case, he would be quite literally correct. 39
With projects that work together, such as the Yasuní-ITT Initiative and the Kyoto Protocol, the task of weaning the global economy off of oil dependence will gain momentum. Over time, the good intentions of those who created programs such as the Kyoto Protocol and the Yasuní-ITT Initiative will be multiplied and the work of reconfiguring the present system will appear less and less daunting. This is especially true for the Yasuní-ITT Initiative when the General Theory of Second Best is taken into account. Created as a singular idea, the Initiative works together with an older, well-known (yet imperfect) policy. Together they amount to more than the sum of their parts. Similar projects, born in the spirit of the Initiative, will add to this progress and, since change is incremental and imperfect, other situations in which double distortions further enhance efficiency and emission reductions are likely to occur.
As this takes place, developing nations such as Ecuador will have the opportunity to pioneer a new method of development and, in the process, shed an economic system that creates an over-dependency on revenue from the export of nonrenewable resources as well as the “resource curse” that often comes along with it. A move away from non-renewable resource extraction would make sense for any developing nation looking to avoid the “resource curse” because, according to the UNDP’s “Energizing the Millennium Development Goals”, “…no country in modern times has substantially reduced poverty without a massive increase in its use of energy and/or a shift to efficient energy sources.” (Climate Alliance 2010). Luckily, Ecuador possesses sufficient renewable energy resources (Warnars 2010, 56). The country has been so far unable to invest in them due in part to its dependency on natural resource extraction (Warnars 2010, 56). If given the chance, the revenue from the Yasuní-ITT Initiative could aid Ecuador in reducing its dependence on oil exports and growing towards a post-petroleum economy that incorporates renewable energy sources and thrives upon projects like the Napo Wildlife Center (Climate Alliance 2010).
The Napo Wildlife Center receives around 2,000 tourists a year, most of which are foreigners, and the earnings of the center have gone to the improvement of the community’s health and educational services (El Comercio 2011). The project received a loan for construction from the German NGO Tropical Natura in 2000, is operated by the Quichua community of Añangu, and employs 35 men of the community as guides (El Comercio 2011) . Unfortunately, Miguel Andy, a resident of the Quichua community of Añangu, which lies along the border of 40 the Yasuní National Park, says that the government’s announcement of potential oil exploration in the area has kept tourists away (Diario Hoy 2011), despite the community’s new facility. A strong ecotourism industry would require ecologic excellence and a better public environmental conscience while providing careers and incentives for the Ecuadorian workforce.
Ecuador could also invest in the construction and enhancement of infrastructure that supports more environmentally sustainable economic activities, such as ecotourism. Even through the recession in the US that began in 2007, the number of American tourists that traveled to Ecuador in 2008 grew significantly (Vogel 2010, 68). By providing ecotourism degrees at state universities and language training, like Costa Rica has done, Ecuador could utilize its extreme diversity and beauty in a productive and protective manner. The creation of a better workforce can contribute to a nation’s standard of living, which is often measured by the UN as the Human Development Index (HDI). In 2001 Costa Rica reached the HDI threshold and also decided to leave its offshore petroleum where it lay (for free). At least in theory, when Ecuador has reached the same level on the HDI and no longer has a population in which 38% of people are affected by poverty and 13% live in extreme poverty (Adoum et al. n.d., 30), compensation will no longer be justifiable (Vogel 2010, 57).
However, this is unlikely to happen as long as oil is the main contributor to the Ecuadorian economy. The Yasuní-ITT Initiative could help Ecuador diversify its economy while breaking free from oil export dependence and raising the nation’s HDI. As that occurred, economic incentives for drilling would be weakened as the standard of living in Ecuador would be not only higher, but also less dependent on the international oil market. Taking into account all that Ecuador and the world stand to lose by continuing to rely on oil exports, the benefits of phasing out oil production while constructing a more sustainable future overwhelmingly outweigh the costs.
Lastly, the Ecuadorian public is behind this initiative; in a poll of the Ecuadorian public in November of 2011, of those who knew about the Yasuní-ITT Initiative 83.4% were in support of it (Vidal 2011). Ecuador’s Minister of Heritage and Culture, Maria Fernanda Espinosa, described the hope of the Ecuadorian people and their government as the desire to create “an economy of bio-knowledge” (Schalatek 2010). This perspective is also reflected in the nation’s new Constitution of 2008, which gives nature rights of its own (Articles 10 and 71) (Schalatek 41
2010). Nonetheless, Ecuador faces an uphill battle, as the realization of such an economy will require a change in the way the world views, values, and uses natural resources.
42
CONCLUSION
The debate over oil exploration in the ITT oil fields of the Yasuní National Park continues on, as it is a complex issue and the Yasuní-ITT Initiative is an unprecedented sort of proposal. The Initiative seeks to make mindful development affordable for Ecuador’s economy while creating a sense of ownership for global biodiversity in the international community. As has been shown, the estimated economic costs of supporting the Initiative are minimal, especially when compared to Plan B. Furthermore, projects such as the Yasuní-ITT Initiative serve to enhance the work of previous policies such as the Kyoto Protocol, while remaining sufficiently comprehensive to function independently. This results in economic reform that moves global trade towards a system that values natural resources and creates a more efficient market. Consequently, developing countries will be given a third option when confronted with the business-as-usual dilemma that pits the potential for economic development and poverty alleviation against the preservation of environmental and ecological wealth.
Isaac Asimov, the American author and biochemist, had something to say about reform, “It is change, continuing change, inevitable change that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be…. This, in turn, means that our statesmen, businessmen, our everyman must take on a science fictional way of thinking.” (Asimov 1978, 5). While the Yasuní-ITT Initiative is far from science fiction, it does require consideration of the world as it will be, as well as an innovative re-thinking of how humans, and the global economy, operate within the natural world.
The discussion presented here of the Yasuní-ITT Initiative provides only a partial view of a very complex issue, focusing on the costs of carbon emissions and the phenomenon of a “resource curse.” More research should be done on how similar initiatives might be adapted for use in other developing countries, the theory of “Green Developmentalism” as it applies to this or similar situations, as well as the existence value placed on areas such as the Ecuadorian Amazon by the public. Research is also required concerning the more humanitarian aspects of the issue such as the value of the indigenous knowledge and livelihoods within the area. Further research could also be conducted on the ecosystem service values of the area, including the medicinal value of plants therein and whether they can be researched or extracted without 43 creating habitat disturbances. The status of all funds and contributions should also be thoroughly researched and monitored over time. Lastly, the possibility for the expansion of projects like the Yasuní-ITT Initiative should be explored, as other parts of the Yasuní National Park are not protected from exploitation at this time. Greater detail on these topics would allow for a better understanding of the controversy surrounding oil exploitation in the ITT block of the Yasuní National Park in the Ecuadorian Amazon.
44
RESEARCH APPROACH
The research process for this project started when I decided to study abroad in Ecuador. During my semester there, I got wind of an opportunity to take a four-day trip to the Oriente, deep into the Ecuadorian Amazon on the Tiputini River. The school at which I was studying, La Universidad San Francisco de Quito, is the owner and caretaker of the Tiputini Biodiversity Station, which was created through a partnership with Boston University some years back. The station lies just across the river from the Yasuní National Park, and there are scientists doing research there year around, along with visiting biology students from the U.S. While speeding down the rivers of the Oriente during one of the boat segments of our eight-hour journey to the station (that also included a flight and a two hour “chiva”43 ride through Repsol’s44 territory), I was in awe of the rainforest. I didn’t know how just yet, but I knew that I wanted to learn more about this resource and what was being done (or not being done) to ensure its preservation.
I also took an ecology class during my time at La Universidad San Francisco de Quito and, as previously referred to, some of the topics and questions brought up in that course got me more interested in the larger relationships between economics and environmental goods in the developing world. Up to this point, I had heard about the Yasuní-ITT Initiative but knew virtually nothing about it. It wasn’t until the end of April 2011, when I started brainstorming research ideas that I found out exactly what was behind it. Shortly thereafter, I also traveled to the Galapagos Islands, where my appreciation for natural resources, biodiversity, and the fight for their preservation grew once more. After this trip, it was time for my voyage back to the United States where, within a few months, my research began more formally.
I started my research in the Penn State library during the summer of 2011, reading articles about the Yasuní-ITT Initiative and such topics as the science of carbon abatement and theories of environmental economics. I read books by Joseph Henry Vogel and Aldo Leopold as well as work done by scholars like Anna Zalik, Carlos Larrea, and Kathleen McAfee. However, some of my most important research came from periodicals. Over the entirety of my research, I kept up on the advancements and setbacks of the Yasuní-ITT Initiative as well as the opinions of
43 A “chiva” is a retro-fitted bus that, designed for warm climates, has no sealed windows or doors and sometimes includes rooftop seating. Bands sometimes stand on the roof and play music during holidays as well. 44 Repsol is a Spanish oil company that has oil production operations in the Ecuadorian Amazon, including near the Oriente town of Coca (the first stop on the journey to Tiputini after a short plane ride from Quito) (Repsol n.d.). 45 scientists and politicians on the subject by reading newspapers from the United States, online communities, and from Ecuadorian newspapers such as El Comercio and Diario Hoy. This research helped me to develop a foundation in the issues and ideas that surrounded the Yasuní- ITT Initiative, as well as to develop my research questions.
However, in order to explore the financial aspects and developmental effects of the Initiative in answering these questions, I needed to find more data about many aspects of the issue. This data concerned all sorts of factors: costs, CO2 emissions, employment statistics, GDP over time, export trends, and much more. Many times I was fortunate to come across this data accidentally through my general search for information online and in the library databases. Nonetheless, there was also a great deal of data I went searching for; on government databases, UN publications, and the reports and websites of Non-Governmental Organizations. I also went to the oil industry members, such as Chevron, to find statistics about the trade and production of petroleum worldwide.
Empirical data came largely from these last few types of sources. The Bureau of Western Hemisphere Affairs provided statistics about the prices of crude oil when exported from Ecuador over several years. The World Bank was a source of data about the Ecuadorian workforce overall while the Ecuadorian National Statistics and Census Institute provided significant data about employment in Ecuador as it pertains to specific sectors in recent years. Lastly, the United Nations Development Group provided important data about the donations made to the Ecuador Yasuní-ITT Trust Fund by supporters worldwide.
This data was used not only to compare some of the more predictable costs and benefits of supporting the Yasuní-ITT Initiative, but also to suggest some correlations between development issues and natural resource use. Moreover, the data was useful for comparing, questioning, and analyzing theories of development such as the “resource curse”, as well as making inferences about the Yasuní-ITT Initiative’s potential effects on economic development in Ecuador, the goals of the Kyoto Protocol, and the environment as a global public good. Altogether, the data was used to explore, and then illustrate, the relative cost-effectiveness of the Initiative given the benefits it could create for both the local and international communities. 46
This research is well founded in that the data and theories were available from many different sources, both public and private, and the sources often reinforced each other’s conclusions. The estimated costs and benefits were pretty constant, based on current valuations of environmental goods and costs (i.e. carbon abatement), as were the data about developmental trends in oil-exporting nations. Nonetheless, a complete analysis of the proposed Yasuní-ITT Initiative must also include a more detailed discussion of the human rights issues as well as more indirect, secondary costs and benefits that may result from the proposal’s implementation. Furthermore, the future costs and benefits, though experts in the field have estimated them, are always difficult to predict and are subject to change. The potential for significant and unexpected shifts in the economic, social, and environmental conditions in both Ecuador and the global sphere increase the vulnerability of these predictions.
Despite these imperfections, my research led me to draw connections between the goals of the Yasuní-ITT Initiative and former political efforts for international collaboration over global environmental problems like the Kyoto Protocol. Upon first reading about the Initiative, I hypothesized that investing in the resources of the Ecuadorian Amazon and reducing global carbon emissions may be a better alternative from a financial standpoint than many may initially assume. I also continued to wonder why countries rich in natural resources experienced so much trouble alleviating poverty. I knew, of course, that many factors played a role in slow economic development, but my research showed a striking difference in the development of countries that exported oil or other natural resources and those that did not.
My research about the Kyoto Protocol and the goals of the Yasuní-ITT Initiative, as well as the economic theories presented by Vogel, led me to my argument that the two policies would work well together to create change. In researching the “resource curse”, as well as learning about it in class and consulting data about employment trends in Ecuador, I saw this as another important issue to be considered in the analysis of this proposal. Lastly, what I learned about the Yasuní-ITT Initiative suggested that the costs of supporting such a plan would likely be less hefty than the costs of extraction. These three findings together demonstrated that the Yasuní- ITT Initiative might provide a cost-efficient way to both work towards solving global environmental problems and encouraging development in poorer nations. 47
This research shows that projects like the Yasuní-ITT Initiative could pioneer a whole new way of looking at the environment and natural resources in the global context. Though imperfect, such programs have a lot to offer both materially and in an effort to rethink international trade, and should be taken seriously. It may very well be more cost-effective in the long run to preserve the Yasuní-ITT Initiative. Furthermore, there is reason to believe that Ecuador’s economic status and wealth distribution could be greatly improved with the reduction of natural resource exports and an increase in other public investments, both of which would be facilitated by the Initiative. In the meantime, the international community could invest in cleaner air and a more bio-diverse world for generations to come.
48
POLICY RECOMMENDATIONS
Initiatives like the Yasuní-ITT Initiative cannot, of course, be used to solve all environmental problems because that would require zero “production” in many areas. Nonetheless, pollution could be reduced through the representation of natural resources and environmental costs in the market, thereby creating incentives for efficient, minimal use of resources and production of externalities. In situations like Yasuní, however, such an initiative is necessary and appropriate because of all that would be lost with extraction as well as the ecological complications around extraction in that area. It may also be appropriate in other bio- diverse parts of the developing world. If successful, the research shows that many believe the design of this initiative could be applied elsewhere.
The authors of the Yasuní-ITT Initiative list some qualifications for what sort of countries might be eligible for similar programs: 1) be a developing county, 2) be a mega-diverse country (Ecuador is one of 19 worldwide [Adoum et al. n.d., 11]) located between the tropics of Cancer and Capricorn, where tropical forests are concentrated and most of the planet’s biodiversity can be found, and 3) possess significant fossil fuel reserves in highly biologically and culturally vulnerable areas (Adoum et al. n.d., 4). These criteria apply to such countries as Malaysia, Indonesia, the Philippines, India, Papua New Guinea, Brazil, Colombia, Venezuela, Bolivia, Peru, Democratic Republic of Congo, and Madagascar (“Ecuador’s Yasuní Initiative - Leaving Oil in the Ground to Fight Climate Change” n.d.). Already, some other countries with oil reserves, including Nigeria, Cameroon and Gabon have started looking into the possibility of creating similar plans as a way of redirecting traditional aid (Vidal 2011).
Another possibility, as evidenced through this research of the work of Adoum et al., is that nations with important centers of biodiversity might be able to place a moratorium on certain natural extraction activities if their HDI is at a level that allows them to do so. Such countries may find it more beneficial to concentrate their resources in more sustainable industries and social services, like Costa Rica has done, instead of focusing on extraction contracts and infrastructure. While this paper has included little research on the effects of this decision for Costa Rica or other nations, Costa Rica has enjoyed some of the greatest levels of political and economic stability of Central American countries for decades. 49
In some cases, the benefits of natural resource extraction in developing countries may very well outweigh the costs. However, efforts to do so as sustainably as possible are important and should be encouraged both by the exporting nation and the global community. As illustrated through the question of oil drilling in the Yasuní National Park, the international community has a common financial responsibility to manage the natural world in a way that protects irreplaceable public goods like biodiversity, the Amazon, and clean air. So, a third solution could include the subsidization of sustainable technologies across national borders by importing governments and/or private extraction companies to help developing nations grow without complete environmental devastation. This, of course, is not optimal because of the effects of the “resource curse”, but would be a better alternative to “dirty industrialization.” This suggestion is not based on any previous studies but has evolved from this research on the Yasuní-ITT Initiative as a way to apply the principles of the Initiative to situations where preservation may not be as appropriate.
Any of these changes in policy would be a great improvement over the historically reductionist manner of viewing and treating natural resources as simple commodities in the economy. While admittedly not appropriate for every situation, the Yasuní-ITT Initiative and policies like it would be the best of the three options for solving issues of development and resource extraction in developing countries as well as slowing environmental depreciation worldwide and in a holistic way. Throughout modern history, we have seen nations move from underdeveloped, carbon-rich entities to highly developed, carbon-consuming giants. The success of the Yasuní-ITT Initiative could provide a way out for other developing nations experiencing the hard choice of climate destruction or economic stagnation. Its success may also suggest that the developed world really can put their money where their mouths are in saying that the lives of future generations are of greater value than a few more years of cheap oil.
50
SUMMARY
The Ecuadorian government has been faced with a choice: to drill for oil in the immensely bio-diverse Amazon or to preserve the nation’s environmental treasures and sacrifice important revenues. However, looking at these options, they have devised a potential third alternative that requires global collaboration. The Yasuní-ITT Initiative seeks to gain financial support from the international community to preserve some common goods: clean air, biodiversity, medicinal plants, cultural heritage, and much more. Of course, convincing countries and individuals to donate $3.5 billion over the next 10-12 years poses a great challenge on its own. Even if achieved, the Ecuadorian economy will still forfeit half of the revenue that could come from the ITT block, and will experience new obstacles in the nation’s desire to value natural resources in a largely unprecedented way.
Luckily, the Initiative has surpassed the requirements for its first deadline. Nonetheless, there are many reasons to doubt the future success of the program, as the hesitations of potential donors are still great and much greater funds must be raised in the years to come. For this reason, an analysis of the net benefits of the Yasuní-ITT Initiative in relation to its alternative Plan B in the context of global climate change and development may help to encourage new donations. This paper has done so through the discussion of the costs and benefits of carbon dioxide emissions and abatement, the General Theory of Second Best as it applied to the Yasuní-ITT Initiative and the Kyoto Protocol, and the theory of a “resource curse” as it may exist in Ecuador and other natural resource-exporting, developing nations.
The issue of costs and benefits is always an important one as, in many ways; the world truly does run on money. It is also important that a policy works in tandem with previous and contemporary policies as to avoid conflicts or unnecessary contradictions. Lastly, well-made initiatives should not be so narrow as to only address one issue in isolation, but should instead strive for multiply beneficial effects. In analyzing these three main aspects of Ecuador’s proposal, it was found that the viability and benefits of the Yasuní-ITT Initiative are greater than expected, provided it receives sufficient international support. The research shows that the benefits of the Yasuní-ITT Initiative outweigh the costs, and that the net benefits of this option far outweigh those of oil extraction in the ITT block. Furthermore, the Initiative could enhance the Kyoto Protocol, and will certainly not interfere with its efforts. Perhaps most importantly, the 51
Yasuní-ITT Initiative will not only protect precious natural resources, species, and beauty, but it will drive development in alternative energies and sustainable industries while protecting minority human rights.
Through this research, it was learned that any attempt to create international policy is highly complex. Furthermore, the valuation of public goods that are often not accounted for in the global market system is a highly elusive and intricate process. Nonetheless, by taking one piece of that puzzle and focusing on an important resource (such as clean air) the significance of an action may be more easily understood. The research also showed that the ability to view both the big picture when analyzing such issues as well as the more localized effects is equally important. For example, the ability to see the potential for a double distortion of the Kyoto Protocol by the Yasuní-ITT Initiative is hugely important, but an understanding of the local effects of Plan B on the Waorani people is equally so. In conclusion, there is much to be gained utilizing varying perspectives, as opposed to a narrow view of any one issue either in terms of scope, angle, or opinion.
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ACADEMIC VITA
Laura DiGiulio 833 W. College Ave [email protected] State College, PA 16801 267-250-8596
Profile: Schreyer Honors College student graduating in May 2012. Originally from Elkins Park, Pennsylvania (near Philadelphia). Fluent in Spanish. Proficient in Microsoft Word, Excel, and PowerPoint.
Education: Pennsylvania State University, University Park: 2008-present o Community, Environment, and Development (Environmental Economics and Policy option), B.S. o Spanish, B.A. o International Studies, B.A. Study abroad at the Universidad San Francisco de Quito in Quito, Ecuador for the spring 2011 semester.
Work Experience: American Red Cross Certified Lifeguard and Water Safety Instructor at the YMCA of Centre County State College Branch in State College, PA (07/2011-present). Also certified in CPR and First Aid. American Red Cross Certified Lifeguard and Water Safety Instructor at Ramah Day Camp in Elkins Park, PA (07/2010-08/20 10). American Red Cross Certified Lifeguard and Water Safety Instructor for Cheltenham Township Parks and Recreation, full-time summer employee and part-time during school year (2005-2010). Work at family business, Phil’s Family Shoes, in Philadelphia, PA. Cashier, help customers, answer phone and take care of miscellaneous tasks (2002-2005).
Academic Achievements and Awards: Member- The Honor Society of Phi Kappa Phi (April 2012) Member- Gamma Sigma Alpha Honor Society of Agriculture (April 2012) Participant at Penn State’s Global Engagement and Leadership Experience (March 2012) Awarded Schreyer Ambassador Travel Grant (Fall 2010) Acceptance to Schreyer Honors College (Summer 2010) Awarded the Floore Memorial Scholarship for the academic year 2009-2010 Dean’s list: Academic year 2008-2009, Fall 2009, Spring 2010, Fall 2011