Why the World Should Pay Ecuador to Keep its Oil in the Ground

Jesse Fox, Treehugger, August 9 2009

A bridge in the Ecuadorian jungle. (photo by Jesse Fox)

A couple of years ago, the government of Ecuador made the world an offer. We will leave some of our oil in the ground, President Rafael Correa announced, if you make it worth our while. His proposal: instead of us extracting the oil (which, by the way, happens to sit under a fantastically biodiverse rainforest) and selling it to you, we'll leave it untouched - and sell you the right to emit the carbon dioxide that we save.

While the idea has generated significant interest, many have questioned its feasibility. This week, however, in a piece published in the Guardian, Kevin Gallagher of the Global Development and Environment Institute explained why Correa's proposal makes perfect economic sense.

The oil in question, representing around a fifth of Ecuador's reserves, sits under Yasuni National Park. Considered one the world's most biodiverse areas, one hectare of land in Yasuni contains more species of trees than in all of the US and Canada combined. Yasuni is also a UNESCO-designated Biosphere Reserve, and protected, like all of the country's natural systems, by an innovative clause in the country's constitution that grants nature the right to "maintenance and regeneration."

Yasuni sits on about 850 million barrels of oil, about enough to power the entire US economy for approximately a month and a half. Gallagher notes that exploiting Yasuni's oil would bring in net benefits of just under $6 billion - around 10% of Ecuador's GDP.

However, oil production in Ecuador's rainforests has left behind a toxic legacy, and odds are that Yasuni would face similar destruction if opened up for exploitation. In economic terms, this would mean the loss of income from tourism and other sectors, as well as the loss of potentially valuable species. Who knows what future wonder drugs could eventually be discovered there, adds Gallagher. The park is also home to some 20,000 Waorani, an indigenous people whose culture cannot be given a price tag.

But all of that is peanuts next to the economic value of the carbon emissions saved. Between the oil extraction and burning and the deforestation, this could add up to some $2.6 billion to $3.7 billion, estimates Gallagher. A Washington Post article on the subject quotes an even higher figure, up to $7 billion. President Correa, an economist, has vowed to invest these funds in social development and renewable energy projects, and has promised to pay the money back if the oil in Yasuni is ever exploited.

For Gallagher, this is a "rare win-win situation... economic efficiency at its finest." And indeed, if Ecuador's unorthodox proposal works, other tropical countries will probably follow suit.

Although several countries, notably Germany, have taken an interest in the proposal, there is still plenty of pressure from economic interests to abandon the plan and starting drilling. The legal framework for putting the plan into action does not yet exist - no such mechanism was included in the Kyoto Protocol, but Ecuador is hoping to have its plan recognized as a pilot project in climate talks later this year in Copenhagen.