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Paying Ecuador to Protect the Rainforest

Image: Flickr/joshbousel

Image: Flickr/joshbousel

A recent episode of NPR’s Planet Money discussed Ecuador’s proposed solution to a national dilemma: the fact that a massive oil discovery and a national park happen to be in the same place. Ecuador’s proposal is to forswear drilling – but only if other countries donate half the value of the oil in aid (about $3.6 billion). For the show, Planet Money journalist David Kestenbaum interviewed RFF University Fellow and Duke University professor Billy Pizer, formerly Deputy Assistant Secretary for Environment and Energy at the Treasury Department. Here’s how NPR summarized his comments:

“The joke we always used to always talk about was, you know, ‘Give me the money or I’ll shoot the trees,’ . . . Pizer says he’d love to keep the park safe. But he says the proposal worried him as a potential precedent that would encourage other countries to threaten to destroy their own forests unless the world pays up.

The show is worth a listen. But, inevitably, material gets left on the cutting room floor. Here are more of Pizer’s views on the Ecuadorian proposal. 

-ed

The main issue that was missing from the discussion was an emphasis on the oil being extracted versus the forest that was being preserved, in terms of the valuation. I spent a while talking with Kestenbaum about how payment for avoided deforestation, and ecosystem services generally, was an active area of policy work (see some relevant work by Duke and RFF colleagues here, here, and here).

But the Ecuadorians have not been focusing on (a) what development of the oil resources would, exactly, mean for the forests, and (b) the benefits of avoiding that development in terms of forest-related metrics, particularly the valuation of forest carbon and biodiversity. The website for the Ecuadoran fund does talk about avoided consequences—but only in terms of carbon associated with the oil reserves. As the documentation suggests, it is not at all obvious that keeping oil in the ground reduces emissions by that much—oil demand is notoriously inelastic (meaning we’ll make up for lost Yasuni oil by paying slight more for other oil resources). The notion of a fixed supply of oil is also increasingly at odds with emerging technologies to extract more oil from all sorts of places.

This is problematic primarily because we have no idea whether their proposition is a good deal compared to investing the money in another area threatened with deforestation or development. If we knew how much forest carbon would be lost from extracting the oil, we could compare the cost per ton to other opportunities. For example, the oil field area is about 200,000 hectares (page 45). If the entire area were deforested, that would be about 250 million tons of CO2 (based on 320 tons of carbon per hectare and converting to CO2). At $3.6 billion, that would be about $15 per ton – a high price given current CO2 prices in Europe of about $5, and is generally high compared to estimates of forest offsets elsewhere (page 47).  Assuming the oil could be extracted while only damaging a fraction of the forest—which seems reasonable—the cost per ton would be that much higher.

This is more than a cold-hearted effort to put a price on a rainforest:  ultimately, donor countries and other funders have to make tough decisions in light of limited funds and a world facing threats on a variety of fronts. Does it make sense to save Yasuni and instead lose another area that is twice as rich in biodiversity and forest carbon?

Even if Yasuni proves to be a good deal in a dollar-per-ton sense, a second question is what, exactly, is being bought? Most preservation efforts focus on tangible activities or policy changes that will be pursued in order to preserve a natural resource. REDD projects typically pay for activities that remove the pressure that exists to to harm forests, and the payments are tied to observed results. If and when the payments end, so too should the incentives to harm the forest.  Here, Ecuador is primarily selling a promise. The cornerstone is a sovereign commitment to repay contributions. But ultimately a sovereign decision could be made to ignore those obligations and to begin drilling. How likely is that? I don’t know, but billions of dollars worth of oil will always sit under the Yasuni forest.

About William A. Pizer

Billy Pizer is an RFF University Fellow, an Associate Professor at the Duke University Sanford School of Public Policy, and a Faculty Fellow at the Nicholas Institute for Environmental Policy Solutions. He is a former Deputy Assistant Secretary for Environment and Energy at the Treasury Department and a former RFF Senior Fellow.

Views expressed above are those of the author. Resources for the Future does not take institutional positions on legislative or policy questions. All information contained on Common Resources is intended for informational and educational purposes and may only be used for these purposes. Please see RFF's Terms of Use for further information.

Comments
3 Responses to “Paying Ecuador to Protect the Rainforest”
  1. James Singmaster, III, Ph.D. says:

    When will groups such as RFF wake up to the basic and sole action for our KIDS to have futures. WE HAVE TO MAKE THE SUN OUR SOLE ENERGY SOURCE. I have posted many cooments on this including the Feb. 18 one here about energy efficiency. But we have to get actions outlined on my Feb 18 comment going. The Science report Dec. 7 . pg 1321 indicates that we are entering THE HYDROGEN AGE that will bury the need for messy, polluting fossil fuels and for dangerous atomic fission and fusion for energy.
    RFF leaders need to wake to our entering THE HYDROGEN AGE, but we also need to wake up to the NEED TO MAKE IT BIOSPHERE RECOVERY AGE with making a resource of our mounting MESSES OF BIOWASTES THAT MAY SMOTHER OUR KIDS’ FUTURES. I have posted many comments on making biowastes including separated sewage solids into a resource for sustainability by using pyrolysis on them. Dr. James Singmaster, III, Environmental Chemist, Ret., Fremont, CA

  2. Dr Ricardo Gonzalez says:

    What about compromising the $3.6 billion into investments in alternative and environmentally friendly sources of energy (e.g. solar energy), and a conversion master plan toward an electricity based economy (e.g. electric-cars and hydrogen-cars), where the electricity comes from solar and other renewable sources.
    This level of investment, including subsidizing the expensive alternative and renewable sources of energy, may allow rendering alternative sources of energy quite feasible in a small country like Ecuador. Would be a very good starting point.
    If This case is still to expensive, why not starting in a small town or district in any part of the world, trying to make a living without petroleum and all goods derived. I would like to see an experiment like that. How expensive could be such an experiment and how feasible. My apologizes for dreaming awake.
    Ricardo Gonzalez

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