Ecuador: Ronald Coase, super-sized

No, seriously. I just noticed this over at China Dialogue (I haven’t read it, in a while):

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.

I have mentioned this problem, vis. carbon off-setting: so-called cap-and-trade works precisely because both “cap” and “trade” are in play. Voluntary carbon-offsetting markets stand to make some money from the “trade” but, without the “cap”, creating a new market for a service is, by and large, as much as we may reasonably expect to achieve (this is not to suggest that such enterprises do nothing: they just won’t do enough).

Hence, the brilliance of the Ecuadorian plan. Rather than, say, making small ‘saves’ of bits of Amazonian rainforest, one of the big causes of deforestation (at least in this region) could be halted (next: McDonald’s lettuce!). The price we pay is less oil (marginally: amongst other things, Ecuador isn’t exactly home to any super-fields), and what we get is less of the damage that oil does – the question then is, does the world value the reduction in the reduction of the Amazonian rainforest enough to pay the USD350bn?

The flip-side, via CNN:

… critics wonder if the politically unstable Ecuador, which relies on oil for nearly half of its export revenues, can keep this promise to the international community or whether authorities are trying to have their cake and eat it, too.

The proposal’s detractors say Ecuador cannot ensure the park’s sanctity given political turmoil that has at times halted oil operations and has made Correa the eighth president in 10 years.

“Correa is asking the international community to dive in to see if there is water in the pool,” said Daniel Erikson, an analyst with the Inter-American Dialogue, a Washington-based think tank.

Bloody interesting idea. Hell, even if it is just a scam by the Ecuadorian President to nick a few cheeky billion from the rest of us, it’s still a cool way to try it.


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