Ecuador, non-renewables and Coase

In a post that covers pretty much the entire environmental economics course in one way or other, Ecuador has suggested that the developed world pay it $350 million a year not to pump any more crude oil, thereby avoiding further pollution of its eastern rainforest.

Is this a Coasian bargaining problem? Who are the suffers and who are the polluters?

It is difficult not to be sceptical - will the West actually pay up? Can the Ecuadorian government be trusted? Will it not take the money now but find the bounty beneath the ground to tempting to pump out later? Will the individuals in Ecuador that have experienced the largest suffering actually see any of the $350,000,000?

Ecuador’s startling oil proposal [Chinadialogue]

Oil has been pumped from here for almost four decades and the result, say environmentalists, is 1,700 square miles (4,400 square kilometers) of industrial contamination, with rivers poisoned, wildlife wiped out and humans falling sick.

But now, mindful of the environmental and political cost, the state has made a startling proposal: if wealthy nations pay Ecuador $350 million a year -- half of the estimated revenue from extraction -- it will leave the oil in the ground.

Supporters say it is an idea whose time has come, a logical step forward from carbon offsetting, in which rich polluters in developed countries compensate for environmental damage caused by their consumer habits.

Since the proposal was first floated in June, there have been promising signals, said Alberto Acosta, a former mining minister and close ally of president Rafael Correa. The German and Norwegian governments have expressed interest, as have parliamentarians from Italy, Spain and the European Union. “This could be a historic accommodation,” he said. Donors could pay in cash, debt relief or other indirect ways.

Some greens champion the proposal as a way to protect biodiversity and combat global warming while allowing a poor country to develop. “It’s not utopian, it’s realistic,” said Esperanza Martínez, of the Quito-based organisation Acción Ecológica (Ecological Action).

But others are sceptical. They predict that rich countries will not stump up the money and that Ecuador’s government will ultimately find its oil bounty too tempting to pass up. The government and oil companies already are eyeing another chunk of Amazonian rainforest, the Yasuní national park, a UNESCO-designated biosphere reserve. Beneath part of the 982,000-hectare park lie the Ishpingo-Tambococha-Tiputini (ITT) oilfields, with an estimated one billion barrels of heavy crude. For the cash-strapped government, this is a tempting bounty potentially worth up to $700 million a year.

“It's a ploy; we don’t trust the government on this,” said Anita Rivas, the mayor of Coca, a town on the edge of the park. Like many in the Amazon, she scorned the notion that oil revenues would ease poverty, a mantra of successive governments worn thin by decades of stolen or wasted revenues. “Where are the benefits?” said Ms Rivas.

Even Acosta said: “We don't want to develop it because we know there will be damage. But if we have no other choice then, lamentably, we will do it.”

The costs of Ecuador’s oil industry are all too visible in those parts of the jungle where crude has been drilled, spilled, pumped and dumped -- a vision of what might be in store for Yasuní park.

Between Coca and Lago Agrio, bleak oil-rush settlements carved out of the bush, oil is never far away. It is in the 300-mile (480-kilometre) pipeline stretching through valleys and mountains. It is in the air in the form of rain and waste gas burnt by flares. It is in 1,000 or so waste pits of black sludge that leak into the water supply. It is in the soil in the form of congealed tar that stunts trees.

It is in the bodies of residents, according to several scientific studies, in the form of tuberculosis and other diseases that make hamlets such as San Carlos, adjacent to a refining plant, zoom off the medical charts. “Two-thirds of my patients have contamination-related illnesses,” said Rosa Moreno, a nurse at a small clinic.

Oil is even in the name Lago Agrio. It means Sour Lake and is taken from the Texas hometown of Texaco, the United States oil giant that drilled in the region from 1972 to 1992 and operated as a mini-state.

Chevron, the even-bigger giant that subsequently bought Texaco, is now embroiled in a $6 billion class-action lawsuit brought by 30,000 indigenous people and settlers. They claim that Texaco poisoned the region by dumping billions of gallons of toxic waste-water and want the company to clean it up. It is one of the world’s biggest environmental cases and has been dragging on for 14 years. “What happened here, we can’t let happen anywhere else, least of all Yasuní,” said the plaintiffs’ lawyer, Pablo Fajardo.

Chevron says Texaco broke no law, performed a $40 million clean-up in 1995 and that any contamination must be the fault of other companies that have operated there since then. “Ours was a beautiful operation, very clean. This lawsuit is a farce,” said Rodrigo Perez, a company lawyer.

Regardless of blame, there is no doubt that oil has devastated much of Ecuador’s forests. The question is whether Yasuní -- which is said to have more tree species in an average hectare than there are the US and Canada combined -- will be next.

For the indigenous tribes who call the region home, the untapped wealth far beneath the jungle floor is a threat.

“We wish it weren’t here,” said Wiyame Irumenga, an indigenous leader and forest ranger, tapping a bare foot against the earth. “We wish people would just forget about it.”

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