Ecuador develops unusual carbon-credit plan to leave oil untapped

May 26, 2009 02:00 AM

Beneath the tropical jungles of north-eastern Ecuador lies a vast pool of oil, representing one-fifth of the small Andean country's petroleum reserves and potentially billions of dollars in revenue. Directly above that pool, the Yasuni National Park is home to a diversity of wildlife that is among the richest on the planet, Ecuadoran and US biologists say.
Faced with these two treasures, Ecuador is pursuing an unusual plan to reap the oil profits without actually drilling for oil.

The idea envisions wealthy countries effectively paying Ecuador to leave its oil -- and the carbon dioxide that would result from using it -- in the ground. Environmentalists hail the proposal as a potentially precedent-setting approach to conservation in developing countries. Ecuador would sell certificates to governments or companies that would allow them to emit carbon dioxide in amounts corresponding to the carbon left underground in Yasuni. Proponents say the plan would help reduce overall levels of air pollution.
"From my perspective, this has got to work," said Matt Finer, a biologist with Washington-based Save America's Forests, who has studied Yasuni National Park. "This area is really of just supreme global conservation importance."

Similar ideas have become increasingly popular across South America. Brazil has developed an Amazon Fund, which seeks to attract money to conserve the rain forest -- so far, Norway has pledged up to $ 1 bn over the next several years. The Japanese government recently agreed to lend Peru $ 120 mm to protect 212,000 sq miles of Amazonian rain forest over the next decade.
And Colombia is seeking funds from Norway to combat climate change by protecting forests.

But relying on other countries to send cash to save remote jungles has run into repeated obstacles, including a lack of clarity on what exactly they would be buying, how the money would be spent and, in the case of Ecuador, how the Yasuni certificates could be sold on carbon markets. Plus, the global economic crisis has made funding scarcer for environmental causes.
"One of the issues that is difficult to handle in this financial crisis is to ask governments for taxpayers' money," said Roque Sevilla, a prominent Ecuadoran environmentalist who is on the committee in charge of the Yasuni initiative. "So that's a huge problem. That's another reason we're trying to go to the carbon market."

Sevilla said that focusing on carbon could save Yasuni. The 410 mm tons of carbon dioxide that would avoid being emitted could raise $ 4 bn to $ 7 bn, Ecuador estimates.
European countries could accept the Yasuni certificates as an equivalent to the carbon allowances traded on the European Energy Exchange in Leipzig, Germany. The exchange is a market for energy products such as electricity and natural gas, as well as carbon dioxide emissions rights. But such an arrangement is not allowed under the rules of the 1997 Kyoto Protocol, aimed at curbing greenhouse gas emissions -- a treaty the United States rejected. Ecuadorans say they hope this type of pilot project could be embraced under climate change rules to be formulated at a meeting in Copenhagen in December, Sevilla said.

"The benefit to the planet is not that we leave the oil underground. That has no benefit. The benefit is the C02 that we keep underground," he said. "So the idea is: try to obtain a compensation not for the oil but for the carbon."
The money from selling carbon-emission certificates would go to a trust fund managed by international organizations. The interest would be spent on protecting national parks and funding alternative energy projects and other environmental initiatives.

Germany has expressed the most support for the Yasuni project. The German Parliament passed a resolution in June in favour of the project and has funded a study to outline how it might work. Ute Koczy, a lawmaker from the opposition Green Party, who travelled to Ecuador as part of a delegation studying the issue, said other countries, particularly the United States, should help find ways to support such a proposal.
"The Ecuadoran proposal is still unique. There is no other proposal like it worldwide. That makes it kind of difficult to find support," she said. "Ecuador's president is getting very impatient and may give the whole area to [the Spanish oil and gas company] Repsol or to China or somebody else. He's under big pressure from the oil companies."

Attacking climate change in this way could prove effective because it simultaneously addresses the two main drivers of greenhouse gas emissions -- fossil fuels and deforestation, said Thomas E. Lovejoy, president of the H. John Heinz III Centre for Science, Economics and the Environment, based in Washington.
"It really goes straight at the heart of the distortion of the global carbon cycle," said Lovejoy, who in the 1980s invented a policy tool known as debt-for-nature swaps. "I find it imaginative and encouraging that there is a government that would be even willing to consider foregoing using a natural resource like that."

Ecuadoran officials said their country's history of oil-driven environmental degradation helped lay the political ground for such a measure.
"The petroleum activity in the north-eastern Amazon has been the cause, directly or indirectly, of a vast process of devastation in the region," said Alberto Acosta, a former minister of mines and energy who helped develop the initial Yasuni proposal. "The worrisome thing is also that the Amazon provinces have more poverty and misery than the rest of the country. You have to do something so you don't repeat this situation," he said.

Acosta's 2007 plan sought to attract international funding to equal the revenue the country would forgo by not drilling for oil, a simpler, if more vague, approach. Since then, he said, President Rafael Correa has vacillated over whether he supports the idea or favours drilling for oil.
"These ambiguities threaten the project," Acosta said.

Juan Fernando Teran, an environmental professor at the Simon Bolívar Andean University in Quito, Ecuador's capital, said the project's designers have failed to clearly explain the benefits of protecting the Amazon, its rich biodiversity and its role in regulating air and water currents far from this country.
"If I knock on your door in California and tell you, 'Help me with a little money to improve the air in South America' -- well, why? South America wouldn't matter to you," he said. "But Yasuni is much more than a museum."

Others said Ecuador made it more difficult by proposing to save a national park, which, in theory, should already be protected.
"That kind of muddied the argument," said Joe Keenan, managing director of the Latin America region for the Nature Conservancy. "My impression is it's a really innovative and daring idea, but I think it's probably ahead of its time."

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