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Will it be conservation or oil extraction in the Yasuní National Park? PDF Print E-mail

A transcendental decision that will define Ecuador's future

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Carlos Larrea M.1

The oil Project Ishpingo-Tambococha-Tiputini (ITT) is located the Amazon Rainforest, in block 43, crossed by the rivers Napo, Tiputini and Yasuní, on the eastern border with Peru. This block contains one of the most abundant heavy oil reserves in the country, yet it is also part of the Yasuní National Park, considered one of the most important biodiversity reserves on the planet which also includes the Intangible Zone, home of the voluntarily isolated and not contacted indigenous peoples, the Tagaeri and the Taromenane.

ITT's oil potential, reaches, according to the recent estimations of Beicip Franlab (2004), 412 million barrels of proved heavy crude reserves (12 to 16 degrees API), which can amount to 920 million barrels if we include the estimated probable reserves. Recoverable reserves are estimated 846 million barrels. If oil extraction occurs, these reserves will be administered by Petroecuador, which, in spite of the oil's low quality, has considered many business alternatives for its extraction. Among them are the possible alliances with state corporations such as SINOPEC (China), Petrobras, Enap and PDVSA.

Considering the environmental impacts of oil extraction in this fragile and sensitive area - environmentally and culturally speaking - an alternative for its conservation has been formulated. The idea is to keep the oil indefinitely underground and, in turn, ask for international compensation allowing this alternative to be viable for Ecuador.

Ecuador's president, Rafael Correa, has declared this option as his government's first priority; that is, to "keep the heavy crude repressed underground", so that an area as extraordinary and diverse in cultural and biological terms, will remain unaffected by oil extraction and its secondary effects. In this same discourse, on April 18, 2007, president Correa presented his "National policy on ethnic groups in voluntary isolation". On September 24th, the president gave a speech at the UN announcing the proposal and the governments will to sacrifice half of the oil revenues from block ITT in order to protect biodiversity with the international community's cooperation. He reiterated his proposal and so his compromise to fight against the CO2 emissions at the OPEP Summit on November 18th when he highlighted Kyoto's failure.

This worldwide pioneer initiative can become a reality with the contribution of the international community in the form of financial compensation amounting to at least half of the resources that the oil extraction option would have generated had it been exploited.2 If we measure the value of the ecosystem services that the Yasuní Biosphere Reserve produces by considering its essential role in the water cycle, climate regulation, oxygen production, among many others, this compensation is comparatively insignificant, and yet, it's enough for the government not to exploit this unique area. These measurements do not even take into consideration invaluable services such as remaining the home of voluntarily isolated indigenous people who are being consulted for the use of their land.

The choice between conservation and oil extraction in Yasuní acquires a symbolic importance in that it represents the alternative between the current development model, based on extraction and non sustainable exploration, and a future model with a vision of respect towards nature, cultural diversity and satisfaction of human needs.

This option is of transcendental importance for the country since it must face, in the near future, the progressive exhaustion of its oil reserves, which currently (with approximately 4.200 million barrels) will not allow for more than 25 years of extraction, even if new oilfields are found.3


Oil and development in Ecuador: Several analysts such as Jeffrey Sachs consider that oil exploration has a negative impact in a country's development plans. The Ecuadorian experience seems to confirm this point of view.

Ecuadorian society and economy greatly depend on oil. This product has contributed with 48% of the country's exports between 1972 and 2006 and with a third of the State's income between 1995 and 2004. In 2006, oil dependency accounted for 60% of exports.

In spite of the significant contribution of oil to the country's development between 1972 and 1982, this scenario has changed over the last 25 years. Nowadays, the country extracts twice as much oil than in the 1970s (during its oil boom) but has not seen significant change in its social development. Income per capita growth between 1981 and 2006 has been practically insignificant (an annual average of 0.6%), poverty did not decreased between 1995 and 20064 in spite of the emigration of more than a million Ecuadorians, urban unemployment is close to 10%, almost half of the work force is underemployed, and social inequality has augmented.

Although oil extraction has reached high levels, and the rise in oil prices has been abrupt, the country is still immersed in a long term economic, social and environmental crisis. Evidently, the changes regarding oil policies done during the Palacio's administration, the State's greatest participation in oil profits distribution and the departure of Occidental Petroleum Corporation, improve Ecuador's future prospects, also impulse by the improvement of the allocation of public spending for development and infrastructure construction.


The unpaid costs of the oil activity: Oil production has caused high environmental and social cost for the country, and, in a larger scale, it is contributing to global warming, which is the most important environmental problem faced by our industrial society and the world's population in general. According to Stern's report, the costs of climate change during the next decades can be equivalent to the great disasters of the XX century such as both World Wars and the Great Depression. 5

In addition, local and global externalities have been taken into account when considering the oil alternative. Oil extraction has very negative environmental impacts since it brings deforestation (not only during the extraction period but also with the roads and the settlers that it brings), irreversible loss of biodiversity, a decline in eco-tourism, the loss of other non-timber natural services. The externality costs have been considered in the ITT-Yasuní model by including the costs of biodiversity loss, deforestation using a social discount rate between 5% and 2%. Additionally, the model also includes the cost of abatement of the CO2 emissions the exploitation of the ITT reserves would produce.

In the Ecuadorian case, the absence of state policy regarding sustainable development and oil activity have contributed directly and indirectly to the massive deforestation of the Northern Amazon Rainforest, and it has not generated productive alternatives due to the lack of agricultural productivity of the Amazonian soil. The permanent lost of biodiversity and the extinction of various species also account for irreversible costs. The impact of the oil activity over indigenous cultures has also been vast and immeasurable. It has specially affected the health of the population living near oil productive areas, which has even lead to the extinction of ethnic groups such as the Tetes and the Sansahuari.

The irreversible lost of biodiversity, the deforestation, and the social damage in the oil producing areas, reduce the possibilities of other sustainable and labor intensive alternatives for development such as tourism.


The Yasuní National Park and the Waorani Culture: The Amazon Rainforest is the greatest tropical forest in the world and constitutes the planet's biggest biodiversity reservoir. The biodiversity's origin goes back to the Miocene Epoch (16 million years ago), and may have preceded the Andes Mountain Range formation and the Amazon River, 10 million years ago.6 In recent periods, during the Pleistocene, the glaciations affected the planet's climate, turning most of the Amazon region into a meadowland, with discontinuous refuges for biodiversity like the area that is now known as Yasuní National Park, whose sinuous and partially flooded territory holds a unique variety of flora formation.

The Yasuní National Park counts with a magnificent amount of biodiversity demonstrated by the 280 liana species, 1130 types of trees, 540 fish species (in a 5km distance), 165 mammals (of which 90 are probably bats), 110 amphibians species, 72 types of reptiles, and more than 630 types of birds found, bearing in mind there may be many more yet to be discovered.

The Waorani culture, whose subsistence has been based on their itinerant hunting, gathering and agricultural behavior, has survived the siege of other ethnic groups and the colonization of western civilization which changed their habits and traditional life style, forcing them, among other things, to leave the inter fluvial plains such as the one formed between the Napo and the Curaray River to live on the riverbanks. The missionaries during the second half of the XX century contributed with the Ecuadorian State's interests of the time by concentrating the Waorani population in a reduced territory to evangelize them, forcing them to adapt to a sedentary lifestyle through the introduction of schools. This process conveniently cleared out the Waorani traditional territory, rich in natural resources, so that oil companies will avoid encountering this "feared" ethnic group7. The impact of oil activity and wood extraction over this culture has been profound; some families have even decided to voluntarily stay isolated such as the Tagaeri and the Taromenani who have no contact with the western world and who have managed to survive in the Intangible Zone, on the southern section of Yasuní National Park.

Nowadays, Yasuní National Park and the Intangible Zone are threatened due to the extraction activity in other oilfields settled within the mentioned areas whose oil reserves are less important those within the ITT block. This situation is worsened by the alarming impact of illegal wood extraction in this zone.


The Oil option in Yasuní: Oil exploration in ITT will imply the daily production of approximately 108.000 barrels of extra heavy oil, during an estimated period of 10 to 15 years, after which time the oilfields output will begin to decline. The crude's high density will increase the cost of extraction and will force the construction of high power thermoelectric plant as well as an oil conversion plant to changing its density and facilitate the oil's transportation and commercialization. The social impact of these constructions will be an additional negative effect for the environment added to the actual extraction effects. Moreover, the needs for seismic prospecting and infrastructure require a period of four to five years before starting the productive stage.

The actual present value of the oil profits from ITT varies depending on the discount rate used as well as the percentage of the profits taken by the State. If the government receives 81,5% of the share, with profits of $21.1 per barrel and a discount rate of 6%, the present value can vary from $4.5 billon (including externalities) up to $5.747 billion (not including externalities).

discount
 


The option of keeping the crude underground: As an alternative in the face of the negative impacts of oil extraction over the global climate and the cultural and biological diversity of this area, the proposal is to keep the oil indefinitely underground. The State proposes to the international community a financial compensation for giving up the rent produced by oil extraction, to the benefit of the environment, the biodiversity and the indigenous cultures living in this territory.

The conservation alternative is considered the government's first priority if its economic viability is justified. The initial idea has received very positive feedback among various European governments, international environmental and human rights organizations as well as from the international and Ecuadorian public opinion.

One option, following this line, is the creation of a compensation fund for Ecuador so that the State can use its capital return for projects focused on conservation and social development. This fund can be administered by international organisms and/or international environmental organizations through an international trust.

This mechanism will allow the State to obtain an indefinite economic resource flow for sustainable human development whereas the oil income flow will only start in 5 years and will only last for a little more than a decade, the time the crude extraction will last.

The compensation fund can be capitalized through different sources. Among them there are governmental donations, debt for conservation swaps, compensation from international conservationist and human rights organizations, and donations from citizens around the world who could symbolically "buy" crude barrels kept underground in Yasuní National Park.

The international impact of a conservation proposal coming from a mega diverse and oil producing country can be very important. The worldwide awareness about the dangers of global warming is rapidly growing, while the limits of the Kyoto Protocol as a mitigation mechanism are obvious. This agreement does not recognize the preservation of tropical forests as a compensation object. Nevertheless, in the negotiation framework for the second international agreement about climatic change, that will start in 2012 with the termination of the Kyoto Protocol, an innovative and advanced proposal such as the one raised by Ecuador can turn the country in a pioneer in bringing forward sustainable development strategies.

The country's contribution to the reduction of global warming can be quantified and represents a much higher value that the profits that Ecuador could receive if it decides to extract oil from ITT. If we only consider the cost of the abatement of carbon dioxide emissions coming from the ITT reserves which amount to hundreds of millions of tons, we obtain a number that clearly justifies the conservation alternative as the only reasonable option for the future of a global society that aims to live in harmonious coexistence with nature.

 

 

 

Appendix

    1. The Waorani Territory
      larrea_waorani

    2. Yasuní National Park and the Intangible Zone (Notice overlap Intangible Zone - ITT)
      Yasuni NP

    3. The Overlap ITT - Intangible Zone
      Overlap intangible zone - itt block

 

  Larrea's mathematical model to estimate present value of profits from block ITT.

Without Externalities Millions of dollars

Profits per barrel

 

 

 

 

Discount Rate

$15.23

$20

$21.1

$30

$30-$40

0.06

4148

5448

5747

8172

9876

0.11

2114

2776

2929

4165

4845

0.123

1794

2356

2486

3534

4078

0.20

725

952

1004

1428

1585

 

With Externalities Millions of dollars

Profits per barrel

 

 

 

 

Discount Rate

$15.23

$20

$21.1

$30

$30-$40

0.06

2901

4201

4500

6925

8629

0.11

867

1529

1682

2918

3598

0.123

547

1109

1239

2287

2831

0.20

-522

-295

-243

181

338


1 Professor, Universidad Andina Simón Bolívar, Quito.

2 Ministry of Energy, Press Release, April 1st, 2007.

3 Towards the year 2000, the oil reserves reached 4629 million barrels, but that quantity has declined since the production has only been of approximately 530.000 barrels per day. Fretes-Cibils, Vivente, Giugale, Marcelo y López-Calix, Roberto. Ecuador: An Economic and Social Agenda for the New Millennium. Washington: World Bank, 2003.

4 According to INEC, poverty has not changed significantly between the Life Condition Surveys of 1995 an 2006. Their current value is 38.3%.

5 Stern, Nicholas. The Economics of Climate Change: The Stern Review. Cambridge: Cambridge University Press, 2007.(Available in PDF ).

6 Horn, Carina. "The Birth of the Mighty Amazon". Scientific American. May 2006, pp. 40-45.

7 The Waorani are internationally known because of the murder of 5 evangelic missionaries (1956), two catholic Capuchins (1987) and various oil workers (1970-1994), that is why they are surrounded by a mystery halo. Trujillo, Patricio, De Guerrreros, Abya-Yala, 1999. However this ethnic group is formed by traditional warriors who protected their territory from the cowuri (which means cannibals in their language called wao tededo) that includes everyone who is not a Waorani and who they thought wanted to kill them.