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Ecuador Proposes Leaving Oil Untapped to Protect Forests and People

The Government of Ecuador recently announced that it is pursuing efforts to leave the oil under Yasuni National Park untapped to protect the rainforest, its species and its inhabitants.

President Rafael Correa proposed the Yasuni-ITT Initiative in the summer of 2007, and was set to decide this month whether to move forward with the project, or to begin the process of selling licenses to extract the oil. “The project will move forward for another 6 months,” said Fander Falconí, Ecuador’s Minister of Foreign Affairs, extending the decision deadline through June 2009.

If Ecuador ultimately succeeds in convincing the international community to compensate it for the revenues forgone from the exploitation of oil, the funds raised will support the preservation of nearly 5 million hectares of biodiverse rainforests, protect 180,000 members of indigenous and Afro Ecuadorian communities, and help put Ecuador on a more sustainable energy path.

Yasuni National Park. (University of Maryland)The Yasuni National Park is located in the easternmost corner of Ecuador’s Amazon region. Yasuni was named a UNESCO biosphere reserve in 1989 and scientists including Jane Goodall and E.O. Wilson have called it “one of the most biodiverse places on earth.” At least two indigenous tribes, the Tagaeri and Taromenane, maintain their traditional lifestyles in voluntary isolation in Yasuni.

The innovative proposal aims to leave 20% of Ecuador's oil unexploited forever. To make the proposal economically viable, Ecuador aims to generate funding to offset a portion of the foregone revenue and use these funds to pursue sustainable development projects in line with the country’s National Sustainable Development Agenda.

The plan would create a new financial instrument to support Ecuador’s long term sustainability goals and would place an economic value on biodiversity.

WRI’s Jake Werksman said the “innovative” proposal “challenges all to think differently about sustainable development.” “It’s homegrown,” he added. “It’s holistic in the sense that it seeks to achieve multiple objectives, and it is solutions oriented.”

How the Yasuni-ITT Initiative Would Work

View the Ecuadorian Government's Yasuni-ITT presentation:

According to recent studies funded by the Government, the proposal would leave 20% of Ecuador’s proven oil reserves—or around 840 million barrels of oil—untouched. If this oil were drilled, processed and burned as fuel, 407 million metric tons of carbon dioxide would be emitted into the atmosphere.

Roque Sevilla, who leads the Ecuadorian Commission on the Yasuni-ITT initiative, presented the proposal as an attempt to link "two big issues". “One is global warming and the other one is the loss of biodiversity. And we wanted to link them both.”

Over a ten-year period, Ecuador would issue Yasuni Guarantee Certificates (or CGYs according to their Spanish acronym) equal to the 407 million tons of CO2. The objective is for the CGYs to be recognized as equivalent to the carbon offsets now traded under the European Trading System (ETS), EU Member States and companies operating under the EU ETS would purchase and trade the CGY credits as they do other GHG allowance credits. Income from the sale of CGYs would go to the government, with the total amount of income received dependent on the prevailing market price of carbon.

The money raised would go into a Trust Fund managed and overseen by members of the Ecuadorian Government, non-governmental organizations and financial contributors.

Interest from the Trust Fund would only be used to fulfill the following five initiatives included in Ecuador’s National Sustainable Development Agenda: forest protection and recovery, changes to the country’s energy supply and demand, and domestic sustainable development initiatives (see presentation above for more detail).

Ultimately, the Ecuadorian government wants the Yasuni-ITT Initiative to become a “pilot project” for other countries such as Papua New Guinea, Peru and Brazil to follow.

Keys to Success and Remaining Questions

Since the international launch of the proposal in the summer of 2007, WRI has hosted several technical workshops with international development and finance experts, members of the Ecuadorian Government and civil society partners to assess and improve the viability of the proposal.

Roque Sevilla and Yolanda Kakabadse, members of the Commission leading the Yasuni-ITT initiative, came to WRI in December 2008 to solicit reactions and advice from the environmental NGO community based in Washington D.C. They aimed to refine and garner support for President Correa’s bold proposal. NGOs and academics from the U.S. and Quito joined the meeting via web-based conference call.

“If we can manage to move Ecuador’s government for the next 100 years into eliminating the thought of oil exploration in protected areas,” Kakabadse said, “that would be an enormous achievement--because this link between biodiversity and climate change would be really proven to be effective.”

At these meetings, a number of questions were raised about the proposal, with many participants identifying areas where the proposal can be strengthened:

  • Will the project’s scope and ambition extend beyond the ITT oil block? The proposal gains in value and credibility if it can demonstrate Ecuador’s broad commitment to the Park beyond the ITT oil block. A moratorium on that particular oil field would hold little environmental value if neighboring oil blocks, also located in the Park were drilled. In addition, the Certificates of Guarantee Yasuni (CGYs) should stand for more than their value in offsetting carbon emissions. An emphasis should be put on the multiple benefits of the Yasuni Park’s protection: biodiversity conservation, protection of indigenous livelihoods and support for sustainable development projects in Ecuador.

  • Will local communities be engaged? Engagement of local groups in the early stages of the development of the proposal carries several benefits. Engaging civil society in Ecuador, while also presenting the proposal to international audiences, demonstrates the Government's commitment to ensure that the Yasuni-ITT initiative meets the needs of local communities and is being developed in partnership with them. In addition, local groups can help refine the concept by, for example, fully understanding and communicating the value of the untouched forest, identifying opportunities for the investment of the funds generated, and proposing ideas for a politically viable and inclusive governance structure to manage those funds.

  • What about possible leakage from the carbon offsets? A carbon offset is environmentally sound only with the guarantee that the avoided emissions will not be displaced to another location – that leakage will not occur. It must be articulated clearly how a reduction of oil production in Ecuador would lead to a marginal decrease in world oil consumption. It can be argued that oil demand would shift to other suppliers thereby resulting in no change in global greenhouse emissions. Another valid perspective might be that, Ecuador’s action, by putting a portion of world oil reserves off-limits is marginally reducing world oil supply stocks and accelerating the global transition toward alternate sources of energy.

  • Will this proposal reduce greenhouse gas emissions? In absolute terms, avoiding the extraction and burning of oil can reduce the total amount of world emissions of greenhouse gases (assuming that the leakage issue presented above is addressed). However, linking the CGYs to carbon markets such as the one in the European Union weakens this claim. In fact, such a move would simply allow European emitters to comply with their regional standard in a more cost effective way. Emissions there would still be capped at the level established by the European Commission – not lower – with or without the partnership with Ecuador on Yasuni-ITT. What such a partnership would bring however is the protection of other valuable biological and human assets provided by the Park: its incredible biodiversity, its indigenous livelihoods and the support of sustainable development projects in Ecuador through the funding generated by the carbon offsets.

  • What will prevent Ecuador from abandoning the initiative? To gain the confidence of potential investors, the legal structure of the Trust Fund needs to be put in place promptly and shared widely. The Government has indicated that disincentives would prevent a future Ecuadorian administration from defaulting on its commitment. In addition, Quito has said that guarantees would be included to return invested funds with interest to the creditors if such a default were to happen. These sound principles need to be built into the Trust document and shared with the international community more publicly.

  • Will countries like Saudi Arabia replicate the Yasuni-ITT model? The possibility of replicating the initiative in other regions is promising, under certain conditions. Similar models in other countries would put a greater share of world oil supplies off-limits and accelerate a shift toward renewable fuels to meet global energy demands. If emissions allowances are generated in exchange for such moves, however, other countries with larger oil reserves such as Saudi Arabia might flood carbon markets. This would cause the price of offsets to drop and dampen the environmental effectiveness of existing cap-and-trade regimes. In addition, the Yasuni precedent might prompt coal producing states to claim similar compensation for halting the extraction of a heavily polluting fuel. Here again, one option may be to emphasize the non-carbon benefits of the Park’s protection. Much fewer instances and regions would pass Yasuni’s biodiversity test. Such favorable treatment could be reserved to those countries whose oil reserves lie beneath highly valuable biological, human and cultural assets.

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