Foreign Policy Blogs

Ecuador Reverses Course

Photo: Juan Cevallos - AFP

Photo: Juan Cevallos – AFP

Ecuadorian President Rafael Correa, president of the smallest oil producing and exporting member of OPEC, has committed to expanding oil drilling – from the current 513,000 barrels of oil per day. President Correa announced last week that he signed an executive decree to end the Yasuni Ishpingo-Tambococha-Tipuni (ITT) initiative. ITT are oil blocks, which house 846 million barrels of heavy crude oil, in the Yasuni National Park, a UNESCO biosphere reserve. Ecuador’s 2008 constitution prevents the exploitation of non-renewable resources in protected areas, but allows the president to request a waiving of the rule if the “national interest” dictates it.

The Yasuni-ITT initiative was designed in 2007 with the intent to protect natural land and mitigate climate change, protect indigenous populations and prevent biodiversity loss. In addition, the environmental and conservation measure was implemented to provide an alternative source of revenue to oil drilling in the ITT blocks. President Correa sought financial assistance from the international community to offset the potential profits from producing new oil. The Initiative aimed to collect $3.6 billion worth of donations by 2023, or half of the estimated $7.2 billion of potential oil wealth, an amount estimated by Ecuadorian oil experts. It was praised at the time as being innovative and potentially serving as a model for other nations to follow.

The plan called for the money to be sent to a trust fund administered by the U.N. to protect Yasuni. The Initiative was set to prevent an estimated 400 million metric tons of carbon dioxide from being emitted by keeping the oil in the ground and UNDP estimated 800 million metric tons of carbon dioxide could be saved preventing deforestation. Yasuni, located in the north east portion of the country in the Amazon Rainforest, is one of the most unique areas on the planet renowned for its biodiversity being home to a vast array of birds, monkeys, amphibians and trees – the Yasuni-ITT trust fund says one hectare in the park contains more tree species than are native to the whole of North America. It also sits atop nearly 20 percent of the nation’s oil reserves, as other reserves are declining. Ecuador’s Petroamazonas, a unit of state oil company Petroecuador, is expected to develop the ITT fields.

As of last week, there was $336 million worth of pledges for the program by a host of nations, but only $13 million had been collected. President Correa established a commission to evaluate the program and it concluded that “the economic results were not what the state had been hoping for.”

In a television address announcing the end of Yasuni-ITT initiative, President Correa denounced the lack of donations for the Initiative and stated that was the primary factor for its failure, “The world is a great hypocrisy. It was not charity that we sought from the international community, but co-responsibility in the face of climate change.” Explaining his action he stated, “With deep sadness but also with absolute responsibility to our people and history, I have had to take one of the hardest decisions of my government.” President Correa defended the action saying the affected area would be less than 1 percent of park land.

Taking the next step

President Correa since said he commissioned technical, economic and legal studies on the basis of which he would seek the backing of the national assembly for drilling in the region, a step required by the country’s constitution. He says it is necessary now for the country to expand its oil production in order to direct more state spending toward the poor. The oil sector now accounts for about 50 percent of Ecuador’s export earnings and about one-third of all tax revenues

Going against the grain (and word?)

As anticipated, a large swath of citizens – including indigenous populations, and local and national environmentalists and advocates – have meet the announcement with strong condemnation. There have been calls for a referendum and many threats of lawsuits. The Yasuni-ITT initiative had been widely popular since its inception. A variety of polls since 2007 have shown that 78 percent – 90 percent of Ecuadorians are opposed to drilling in Yasuni.

Countering President Correa’s one percent claim, there have been non-government estimates predicting that dissolving the Yasuni-ITT could actually affect 20-30 percent of the land, as new roads will provide the opportunity for further development in the future. Opposition groups have also been pointing to Ecuador’s own misfortune with oil. Chevron last year was ordered to pay $18.2 billion for pollution to Amazonian rivers. Chevron is fighting the ruling.

The Correa administration had been hailed for prior environmental commitments. For example, the country became the first in the world to codify the “rights of nature” into its new constitution. The clause grants nature the right to “exist, persist, maintain and regenerate its vital cycles, structure, functions and its processes in evolution” and will grant legal standing to any person to defend those rights in court.

Paying the bills

Having trouble paying its debt and accessing international financing are factors not widely cited for allowing more drilling. Ecuador has increasingly turned to China for loans and new partnerships. The nation owed China more than $7 billion as of last summer, more than a tenth of its GDP. China began loaning billions of dollars to Ecuador in 2009 in exchange for oil shipments. Part of the agreements also required Ecuador to invest in infrastructure projects and involve Chinese firms. China was not a large importer of Ecuadoran crude in 2011. However, there was a moderate increase in flows to China in 2012. Ecuador’s top export market remains the United States.

What next?

As long as the Ecuadorean government relies heavily on oil for its revenue, it is likely more announcements of expanded oil drilling are likely to come in the future.