Sep 22nd 2010
IN 2007 Ecuador’s president, Rafael Correa, proposed a rather unorthodox approach to exploiting his country’s oil resources. Rather than pumping the estimated 900m barrels in the Ishpingo-Tiputini-Tambococha field buried below the Yasuní rainforest park—which represent around a fifth of the country’s total reserves—he suggested that the world pay his country $3.6 billion to leave them underground, thus preventing 436m tonnes of carbon dioxide from entering the atmosphere.
The scheme’s prospects were always dubious. The oil’s net present value is over four times greater than the market price of the European carbon credits Mr Correa hoped to obtain. Moreover, the programme’s eligibility for the credits was questionable, since taking Ecuadorean oil off the market might well lead companies to extract even dirtier sources of petroleum elsewhere. And Ecuador’s spotty record of honouring its international commitments gave would-be participants little comfort that it would abide by the deal’s terms—Mr Correa defaulted on $3.2 billion of bonds in 2008.
Nonetheless, Ecuador forged ahead. In 2008, it received a €300,000 ($425,000) grant from Germany for feasibility studies. And six weeks ago it signed a memorandum of understanding with the United Nations Development Programme, which stipulated that the organisation would administer a trust fund that would use payments into the scheme for Ecuadorean renewable-energy projects. Chile donated a polite $100,000 last week.
Now, however, the wheels are starting to come off. Ecuador had been counting on a $700m contribution from Germany over the next decade. Dirk Niebel, the German government’s cooperation minister, recently wrote that the plan lacks “a comprehensive rationale, a clear structure of goals and concrete statements on which guarantees will be given,” suggesting that few German funds will be forthcoming. To assuage such concerns, Ecuador’s patrimony minister, María Fernanda Espinosa, will travel to Germany next week. But she will have a tough time accounting for the decision by Ecuador’s Congress last week to cancel the country’s investment-protection treaty with Germany.
The plan is also attracting increased scrutiny at home. Local activists have long questioned Mr Correa’s commitment to protecting the environment. They point out that the scheme would protect just 15% of the Yasuní park, and that the government continues to subsidise domestic fuel consumption.
Perhaps the best indicator of the programme’s prospects is that the president himself is hedging his bets. Even as he seeks contributions to the fund, he has continued preparations for a “Plan B” in which the state oil company would drill the field.