TREES OR OIL : CONSERVATION IN ECUADOR / THE ECONOMIST

LATIN AMERICA
Conservation in Ecuador
Trees or oil
Jul 2nd 2009 QUITO
From The Economist print edition

An ambitious scheme to save pristine forest starts to take shape

THOUGH half of Ecuador lies in the Amazon basin, its rainforest is shrinking faster than in neighbouring countries (by 1.67% a year). It has been ravaged by logging, poachers and oil extraction. Settlers have streamed in to carve out a precarious life. Over the past decade they have been joined by thousands of refugees fleeing violence in Colombia, as well as guerrillas and drug traffickers who inflict it. Native tribes have been uprooted, forced deeper into the forest or have disappeared.

The government of President Rafael Correa now wants help to keep pristine one of Ecuador’s most important remaining jungle areas, in the Yasuní national park. In a corner of the park known as ITT (after the Ishpingo, Tambococha and Tiputini rivers) lies an oilfield which preliminary seismic studies show holds almost 846m barrels of oil, or around 20% of Ecuador’s reserves. The ITT area is unusually biodiverse. It is thought to be home to several hundred tribesmen who shun the modern world and whose way of life is protected under a new constitution promoted by Mr Correa.

Oil companies, including Spain’s Repsol and Chinese-owned Andes Petroleum, are already extracting about 59,000 barrels a day elsewhere in the Yasuní park. Repsol tightly controls access to its field, keeping out would-be colonists. Further east, Petroecuador, the state oil company and the country’s worst polluter, is developing a block adjacent to ITT.
In 2007 when Mr Correa first mooted the idea that the world should pay Ecuador not to exploit the ITT oil this was widely dismissed as half-baked. Under the influence of a group of politicians from across the spectrum and environmentalists the idea is gaining flesh and credibility.
It now centres on issuing bonds for the value of the carbon emissions avoided by not burning the oil and by preserving the forest. These would be worth up to $5.2 billion at the current carbon price in the European emissions’ market. The money would be lodged in a trust fund managed by international bodies such as the Inter-American Development Bank, and spent on alternative-energy projects in Ecuador. Bondholders would have a say in how the money is spent.
Last year Germany agreed to give €300,000 ($425,000) for feasibility studies, and last month reiterated its support. The scheme will go ahead once the first $350m is raised, says Roque Sevilla, a former mayor of Quito who is promoting it. The hope is that most of this money will come from European governments. If a future government in Ecuador opted to exploit the oil, it would have to repay the bondholders with interest, says Francisco Carrión, a former foreign minister who is another of the promoters.
He accepts that the main obstacle is Ecuador’s poor reputation. In December the government defaulted on $3.2 billion in bonds—the third default in as many decades. As a result of Mr Correa’s expansionist fiscal policy, Ecuador risks running out of foreign-exchange reserves, increasing the temptation to tap the oil. Nevertheless, the Yasuní-ITT initiative, as it is called, is now worth a closer look.
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