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LESSONS FROM : YASUNI ITT INITIATIVE

Rather than viewing this initiative as evidence that funding to preserve oil reserves is ineffective, it offers valuable insights to rectify shortcomings and innovate through carbon markets:

1.   The money collection: efficiently generating funds for not extracting oil could be achieved by tapping into carbon markets buyers.

2.   Ecuador's double dealing: Carbon credits exchanged for not extracting oil should be granted exclusively to countries with a territorial oil disengagement policy.

​3.   Moral Hazards: Transferring mineral rights to an environmental international organization transforms the narrative from environmental coercion to a pursuit of exploring alternative economic models for oil extraction.

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CONTEXT AND CHRONOLOGY

During the Pleistocene era, glaciers significantly cooled the planet, compelling species to concentrate in rare warm havens. Ironically, these Pleistocene refuges would, after years of successive layers of decayed organic matter, evolve into today’s most gigantic oil reserves.

In the 1980s, geologists discovered such reserves in Ecuador’s Yasuni National Forest, identifying three oil fields: Ishpingo, Tambococha, and Tiputini (ITT). Most projections estimated around 900 million barrels, constituting 30 percent of the country’s entire oil reserves.

Yasuni was already recognized as an environmental and social hotspot. Praised by scientists for having the highest level of biodiversity on the planet, it was also known as the last ancestral lands of the Huaorani and Quechua people.

When news of oil exploitation surfaced, civil society groups and scientists collaborated on the “Option One” proposal—leaving oil permanently in the ground in exchange for compensatory financial mechanisms. Although intensively discussed, it was never implemented because the Ecuadorian government had already sold the rights to the ITT field to Petrobras, which had made the commercial discovery and initiated the construction of a road.

Everything changed after the Ecuadorian Revolution of 2005, which was a response to corruption. Petrobras's permit was revoked, and the newly elected socialist, Raphael Correa, announced his support for the “Option One,” renaming it the “Yasuni ITT” initiative.

In the 2007 United Nations General Assembly, President Correa outlined his plan to collect $3.6 billion by 2024 through a National Development Fund to promote renewable projects and alleviate poverty in the country.

However, five years later, Correa shut down the initiative after only a meager $13 million was collected, stating, 'we have waited long enough... the world has failed us.

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WHY IT WAS A GOOD IDEA ON PAPER

The Yasuni ITT initiative garnered support from prestigious world leaders, prominent civil society organizations, and international institutions, and for good reasons.

 

The idea of seeking alternative economic solutions to oil drilling was compelling due to:

  • Protecting the most biologically diverse hotspot in the Western Hemisphere

  • Preserving the ancestral lands of indigenous peoples and their last hunting grounds

  • Investing in social and environmental projects, including reforestation, renewables, and national education programs

  • Sequestering crude oil in the ground, equivalent to around 400 million tons of carbon

  • Preventing the deforestation of millions of acres of old-growth forest associated with oil exploitation

Furthermore, the initiative considered the various ecosystem services provided by the Yasuni Forest, such as flood and drought control, which modern economies have yet to fully incorporate into their considerations

WHY IT DIDN'T WORK AND HOW TO FIX IT

Despite the potential benefits, Correa’s proposal encountered insurmountable flaws that derailed the entire initiative, setting a problematic precedent for oil supply-side policies and financial incentives to leave oil in the ground. Let’s examine the challenges that plagued the initiative and explore potential enhancements, particularly through the incorporation of carbon markets.

1. THE MONEY COLLECTION

Ecuador issued Yasuni Guarantee Certificates (YGCs) as non-interest-bearing fiduciary papers, intended as a guarantee that the ITT oil would remain underground indefinitely. However, these certificates lacked a genuine carbon value attached to them. Donors could contribute amounts ranging from $25 to millions without a clear understanding of the impact of their donations. Since the YGCs were not registered on any market, they held no financial value.

Furthermore, the initiative relied on scattered and heterogeneous donors who could make non-committal pledges. The fragility of these certificates made potential contributors hesitant to participate, contributing to the gap between global interest in Yasuni and actual financial support. The promise of distant and uncertain revenue from donations also generated internal political pressure to exploit the ITT oil reserve, which could provide immediate and certain revenue for social programs.

Relying on tangible buyers driven by self-interest could prove to be a more efficient means of generating funds in exchange for leaving oil in the ground. During the period when the Voluntary Carbon Market (VCM) was in its early stages and the Clean Development Mechanism (CDM) under the Kyoto Protocol faced the risk of collapse, the landscape has evolved. Today, despite recent scandals involving REDD+ projects, the VCM is more structured and poised for growth. Additionally, Article 6 mechanisms are beginning to emerge, with the first project registrations and deals between countries taking shape.

If the Yasuni ITT initiative had developed an approved market methodology to annually generate and sell unique, tangible, and additional carbon credits, international markets might have been better positioned to meet the required funding, potentially easing political tensions.

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2. ECUADOR'S DOUBLE DEALING

Ecuador's endeavor to seek compensation for leaving its oil assets stranded in Yasuní paradoxically aligned with efforts to secure more oil and maintain high oil prices. In a way, the country was playing both sides of the contentious debate over the future of oil. Even if the Yasuní-ITT proposal had been implemented, it wouldn't have halted oil production elsewhere in Ecuador.

Throughout the 2010s, Ecuador's oil production occurred significantly within protected areas, encroaching upon the preserved land of the Yasuní National Forest even when the Initiative was in full force. The United States opted not to participate in the initiative, citing 'lack of clarity on the guarantees that the government of Ecuador will provide' and 'continued pressure to develop petroleum reserves.

Carbon credits, in exchange for stranding oil assets, should only be available to countries with a territorial oil disengagement policy. It's not practical to attach carbon credits to specific oil fields (project-based) when protection measures for one field may be undermined by the development of another just 40 miles away.

Instead, carbon credits should be jurisdictional, operating on a state or province scale. This approach incentivizes substantial policy changes and regulations, allowing for more effective monitoring of potential leakage.

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3. MORAL HAZARDS 

Some affluent Western countries hesitated to participate in the initiative, viewing it as a form of environmental blackmail—akin to a 'you pay, or we drill' scenario. Others were skeptical about Ecuador's commitment to permanently leave the oil underground, even in the event of a successful initiative. These concerns were further amplified by Ecuador's historical political instability and President Correa's tendency to threaten drilling whenever milestone targets weren't met.

Additionally, some European countries, such as Italy and Germany, were uncomfortable with the notion of paying for non-action. They sought more tangible and immediate outcomes from their donations.

Had Ecuador chosen to relinquish its mineral rights over the Yasuni National Forest to an international organization, such as UNEP, it would have more effectively demonstrated its commitment to keeping carbon out of the atmosphere.

Furthermore, if Ecuador had pledged not only to cease drilling but also to engage in reforestation efforts and invest in renewable energy production capacities, the Yasuni ITT initiative would have been perceived not as environmental blackmail but rather as a plea for assistance in finding an alternative economic model to oil extraction.

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AN ENCOURAGING FIRST ATTEMPT RATHER THAN A DETERRING FAILURE

Yasuní-ITT was a revolutionary and pioneering mechanism proposing the notion of leaving fossil fuels underground. The failure of this initiative should not discourage future innovations in supply-side climate measures. Oil demand will persist unless efforts are made to reduce extraction. For a nation heavily reliant on oil exports, the mere existence and brief implementation of the proposal can be seen as a victory.

Rather than viewing this initiative as proof that oil extraction is unstoppable, it serves as a lesson to learn from its mistakes and envision new financial mechanisms to keep oil in the ground. This proposal has paved the way for carbon markets to become one of the instruments for transitioning away from oil.

Interestingly, Correa inadvertently managed to save Yasuni from oil extraction. As the newly elected president, he played a role in crafting the 2008 Constitution of Ecuador—the world's first to legally recognize the enforceable Rights of Nature.

After a decade of activism by environmentalists and Indigenous leaders, known as Yasunidos (Yasuni United), the government was compelled to hold a referendum on whether to leave Yasuni's oil in the ground indefinitely.

Despite economic threats and the costs associated with dismantling operational infrastructure, the people of Ecuador successfully challenged the power of big oil, securing an astonishing victory for the future of the Amazon.

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