The marriage of an unlikely couple - carbon trading and non-resource extraction - and all in the context of a recession
According to conventional wisdom, there probably never was a great time to pay an unpredictable Latin American country with a doubtful debt reputation a significant amount of money not to sell a resource which your economy is dependent on. That was essentially the reaction of the majority of the international community when Ecuador´s President Rafael Correa first asked for international “compensation” not to exploit the estimated 960 million barrels of oil in the Ishpingo Tambacocha Tipituni (ITT) oilfield, located deep in the heart of the Yasuni National Park - a highly biodiverse area made up primarly of rainforest. No amount of arguing about the benefits from protecting unrivalled biodiversity, isolated indigenous groups, or even the need to mitigate against global climate change could move international governments to give Correa´s flagship environmental policy anything more than faint praise. So why, in the middle of recession, have the German government just made a concrete offer of $650m over the next 13 years?
In fact, the environmentalist arguments in favour of not exploiting the ITT have never been in doubt. What has changed is that Ecuador has made various compromises in order to transform the proposal from an environmentalist pipe dream to a viable alternative to a development-conservation dilemma. These include:
- Giving a certain amount of control to the financiers about the use of the money, be it in biodiversity conversation, renewable energies, or social programmes.
- Providing guarantees to investors, by selling bonds which would convert into debt with interest, if any future government were to proceed with exploitation of the oil in ITT.
- Agreeing that the administration of any contribution would happen under the auspices of an international organization, possibly the Inter-American Bank.
- Accepting that governments and companies would only invest in the Yasuni-ITT if they could use it to offset their carbon emissions - whereby companies or governements can offset their own greenhouse gas emissions, by preventing the release of greenhouse gas emissions, or providing a sink for greenhouse gases (e.g. in forests), elsewhere.
On the German side, the Government appears to be demonstrating that there is no inherent reason for governments to suddenly ignore environmental issues due to budget constraints and a global economic crisis. Beyond that, the willingness to put money into such an unconventional initiative demonstrates that governments can and should look beyond the short-term realities of the slump, and actually make investments in initiatives that do not simply entail a smooth return to “business as usual” based on unbridled fossil fuel extraction once the recession is over.
The Yasuni-ITT Initiative is unprecedented for so many reasons, but perhaps the most interesting is that it threatens to marry an unlikely couple: carbon trading, and the non-extraction of fossil fuels. If we consider that the most consistent criticism of carbon trading is that it perpetuates a fossil-fuel based economy, it becomes clear that the Ecuadorian Government has taken the concept, and given it new meaning. It is still early days, and Ecuador will be hoping to lure substantial new investment before exploitation can be explicitly ruled out. Nevertheless, in pushing the climate change debate towards a focus on non-resource extraction as the only secure way to ensure environmental security, the Ecuadorian and German governments have pointed the way towards a fundamentally new way of resolving the world’s environmental problems.