Monday, June 14, 2010

Ecuador Puts a Price Tag on Untapped Oil

By Daniel Grossman in Ecuador

for National Geographic News

Whether they’ve looked at the trees, the insects, or the jaguars, scientists have agreed that Yasuní National Park (map) in Ecuador’s Amazonian rain forest is one of the most diverse places on earth. But nature left one thing underground that could seal the fate of all that life above: Nearly one billion barrels of oil.

In the coming weeks, Ecuador aims to sign a unique agreement to forgo drilling for oil in a huge plot of this rain forest in exchange for money. The idea is that contributions from industrialized nations and, potentially, from corporations would make up for the badly needed petroleum revenue that the South American nation would lose by keeping the fossil fuel underground.

(Related: “The End of Cheap Oil”)

Although there have been many hurdles—including a controversy over whether the deal would forfeit too much of Ecuador’s sovereignty—the government’s chief negotiator now says the agreement will be signed by early July. If it comes together, some hope that the so-called Yasuní-ITT Initiative— named for the area’s Ishpingo, Tiputini, and Tambococha oil fields—could be a model for combating global warming.

A Nation that Runs on Oil

The deal would be a landmark for Ecuador, a nation that practically runs on oil.

One-third of the government’s revenue comes from oil payments, according to official sources; observers say the true figure is probably much more. Crude is the largest export. The reliance on a single commodity began four decades ago, when Texaco completed a pipeline from the Amazon lowlands in the east, known as the Oriente, over the Andes. Ecuador quickly became South America’s second-largest oil producer.

It has since pumped about 4.5 billion barrels of crude worth more than $100 billion. The bonanza came at a cost to forests and wildlife, though. Tens of thousands of fortune-seekers from Ecuador’s highlands joined the boom. They carved homesteads and plantations from virgin forest along oil-well access roads. As a result, Ecuador’s rate of rain forest deforestation is among the highest in the world.

Also, billions of gallons of toxic liquids were dumped into unlined pits at hundreds of oil well and processing sites. Who will pay to clean up the polluted land and water, and compensate people harmed by the chemicals, is the subject of a 17-year lawsuit that could be decided later this year. If an Ecuadorian judge follows the recommendation of a court-appointed expert panel, he could order Chevron (which merged with Texaco in 2001) to pay a $27 billion fine, possibly the world’s largest civil penalty. Chevron admits dumping drilling fluids, but it says it practiced methods accepted at the time and that it performed a cleanup overseen by Ecuadorian regulators before transferring operations to its successor, state-owned Petroecuador.

This history was all part of the backdrop in September 2007 when Ecuadorian President Rafael Correa unveiled a proposal to ban drilling in a plot of the Oriente about half the size of Rhode Island, mostly inside Yasuní Park. When Ecuador created the park in 1979, the government severely restricted road building and logging, but was at that time unwilling to ban drilling for oil. Now, Correa says, the nation would be willing to leave some of that oil in place. Although the proposed protected area is not as large as some environmentalists would like, it's a block that holds about 20 percent of Ecuador’s reserves. The only catch: Correa wants the nations of the world to contribute about $3.5 billion to compensate Ecuador for the revenue it would lose. At the time, he said that would be about half the value of the oil in the so-called ITT block. He touted the proposal’s benefits in helping to alleviate global warming; leaving the oil in the ground would prevent 400 million tons of the greenhouse gas carbon dioxide from entering the atmosphere.

Above The Oil Reserve, Rich Diversity

Kelly Swing, director and founder of the Tiputini Biological Station, a research base in Yasuní, talks about how curbing drilling would be a boon to the forest itself. According to one study, a single hectare of Yasuní forest (about the size of two football fields, including end zones) contains 100,000 insect species, more varieties than scientists have recorded anywhere else. Other studies show that more frog and toad species hop through Yasuní’s forests than are native to the United States and Canada combined. Within the 2-square-mile (5-square-kilometer) boundaries of Swing’s Tiputini Station, researchers have identified 200 species of mammals, including 10 of primates, 100 of bats (more than twice the number native to North America) and big cats like jaguars and pumas.

And at Estación Científica Yasuní, several hours by motorized canoe upstream from Tiputini, botanist Álvaro Pérez has methodically identified every single tree—a total of about 300,000—in a plot a little smaller than Washington, D.C.’s National Mall. Such meticulous record keeping has helped researchers determine that on average 655 tree species spring from every hectare of Yasuní’s soil, more than are native to the continental United States.

Correa’s proposal to protect this reserve from oil development drew praise in Europe—with Germany’s government pledging about $1 billion to the effort—and there were predictions that an agreement would be signed during the Copenhagen climate talks last December.

(Related: "Energy crossroad for Copenhagen climate summit negotiators")

But early this year, Correa appeared to back away from the plan, saying his negotiators were ceding too much Ecuadoran sovereignty in exchange for contributions. His foreign minister and Roque Sevilla, a former mayor of Quito who headed a presidential commission on the effort, resigned in protest. Commentators said the plan was at a standstill.

But Correa appointed a new negotiating team, which recently worked out an agreement to have the United Nations Development Programme administer the project’s trust fund. A six-member oversight board will include at least three Ecuadorians, a provision designed to alleviate concern about the influence of outsiders.

Ivonne A-Baki, former Ecuadorian ambassador to the United States, now Ecuador’s negotiator for the agreement, says the document will be signed in a ceremony in Quito by early July. In a telephone interview, A-Baki said she expects several countries to announce new commitments now that management of donations is clear, although she would not name any beyond Germany. A-Baki said she also has heard from many companies that might want to contribute. She declined to identify them, though she said supporting the Yasuni plan would be a cagey move for an oil company looking to garner good publicity. “If I were BP,” she says, “I’d be the first one to do it.”

Sevilla, the former head of the presidential commission on Yasuní-ITT, says the plan has faced stiff opposition in Ecuador because it runs counter to an entire history of use and extraction of mineral resources. “In the short term it will be very difficult, because we are breaking a paradigm,” he says. “But afterwards, they are going to use this example for the future.”

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