Energy Policy in Latin America: A Cross Roads of Environmentalism, Indigenous Rights and Development
DEVELOPMENTS
Energy policy has become ever more important to our national self interest both because energy exploration and exploitation involving moral and legal issues surrounding international trade and also corporate law, indigenous rights, and environmental law and treaties. Energy policy is further complicated by the different laws and unique relationships involved in the negotiation and operation of international oil companies within foreign countries. As our society become more and more concerned with environmental issues along with the increasing pressure on companies to operate in a ethically responsible way the United States needs to be considering the ways in which multi-national companies are operating in foreign countries and how their operation influences perception of the United States government abroad. Recent oil discoveries in Latin America coupled with media coverage of lawsuits involving multi-national oil companies has created the perfect storm to begin exploring ways in which energy policy can promote social justice, regional security and minimize environmental impact. Ecuador provides a perfect lens through which to view this changing perception of the intersection of energy policy, environmental law, indigenous rights, multi-national corporations and global relations given the recent high profile of the lawsuit brought against Chevron on behalf of 30,000 residents whose way of life has been devastated by pollution.
BACKGROUND
Oil mining and production has a long and complicated history all around the world and nowhere is this more true than in the Ecuadorean Amazon. Ecuador provides a good case study for oil production in the region because there have been relatively few actors operating in the region and it’s problems with Texaco have been dubbed the Chernobyl of the Amazon by the media. On March 5th of 1964 and exploration concession was signed between Texaco and the Ecuadorean government. The resulting Consortium formed was 50% Texas Petroleum and 50% Gulf Ecuatoriana. The Trans-Ecuadorian pipeline was completed in 1972. In August of 1973 all regulatory and supervisory authority over Consortium operations is granted to the Ecuadorean government by Presidential Executive Decree. In June of 1974 Petro-Ecuador acquired 25% share of the Consortium and by June of 1992 Petro-Ecuador had acquired 100% ownership of the Consortium and all related facilities, also taking over operation and ownership of the pipeline which Texaco had been operating up until that point. Beginning in 1993 a series of lawsuits file in the United States began to plague Texaco all relating to alleged toxic waste site created by Texaco. After a series of dismissals and settlements Texaco came to an agreement with the Ecuadorean government on May 4, 1995. Texaco and the Republic of Ecuador signed a comprehensive and detailed Settlement Agreement ("TexPet") which financed environmental damage remediation, social projects, and medical centers to benefit victims of the toxic waste. Texaco also agreed to clean up 161, it's share, of the polluted sites totaling 40 million dollars in clean up expenses. By 1998 Texaco completed it’s obligations under TexPet which was signed off on by the Republic of Ecuador, releasing Texaco from further liability. Petro-Ecuador failed to clean up the remainder of the pollution preferring instead to continue using them as repositories of toxic waste to this day. The Lawsuits initially brought in New York in 1993 were transferred to an Ecuadorean court of law and proceed to this day.
In the suit, first filed in New York, lawyers representing 30,000 people in the Lake Argo area alleged that billions of gallons of formation water and other byproducts of the mining process were dumped by Texaco in hundreds of pits, causing damage to the flora and fauna of the jungle, including it’s human inhabitants. The plaintiffs also seek compensation for displaced native people in the region forced from their ancestral lands as a result of the pollution. The plaintiffs also allege that the toxic waste has contributed to the significant rise in cancer rates being experienced by the people who live in the region. American judges have ruled three times that the United States courts have no jurisdiction over the matter. With the ascension of President Correa Ecuadorean law has changed providing more protections for the environment and even granting constitutional rights to flora and fauna. Plaintiffs were initially seeking 6 billion dollars in damages, however an independent court-appointed expert argued that Chevron was liable for 27.3 billion dollars in damages. Chevron refuted the claims made by the court-appointed expert by questioning his credentials and pointed out almost all the data he used in compiling his report was based on data provided by the plaintiffs rather an independently verified sources. Chevron also asserted that it's total profits generated from the region in the last twenty years they had operated only amounted to 497 million dollars while the Republic of Ecuador received over 25 billion dollars in profits, taxes and royalties from the field over the same period. Chevron has also forcefully argued that the legal process in Ecuador has been subverted by political actors who operate with their own agenda and routinely engage in corruption and fraud. Consequently Chevron has filed a claim with the international arbitration court in The Hague and a review of U.S. trade agreements with Ecuador.
Petro-Ecuador continues to operate in the region as an oil extractor and polluter seeking access to ever more oil fields within Ecuador. With the recent discovery of huge oil caches in the Yasuni National Park President Correa is seeking to preserve the area and keep it pristine. His proposed strategy with regard to preventing Petro-Ecuador from mining in the park is to have the other countries pay Ecuador not to exploit the region. The proposal involves issuing bonds for the value of the carbon emissions avoided by not burning the oil and by preserving the forest. The bonds are estimated to be worth up to 5.2 billion dollars at the current carbon price on the European emissions' market. The money raised through the sale of the bonds would be kept in a trust fund managed by international bodies and directed towards alternative energy projects in Ecuador. Bondholder would have input on how the money is to be applied. If Ecuador decided at any point to exploit the oil in the Yasuni National Park, it would have to repay the bondholders with interest.
ANALYSIS
Given the complexity of energy policy and the important American interests involved in the exploring, exploiting, and security of the energy production and sale it is imperative that the United States pursue an international energy strategy that promotes peace, stability and a respect for human rights and environmental protection. How best to promote an international energy policy that comports with the United State's goals remains a complex process with many possible solutions. Mandating minimum standards for oil companies, incentivizing new and existing technologies, and educating oil consumers to put political pressure on multi-national oil companies to behave ethically are all possible solutions to ensure a more standardized energy market and exploitation regime. The lawsuit against Chevron demonstrates the impotence of individual country legal systems in this area. Oil companies are able to defend indefinitely, and given the large amounts of damages being sought it makes economic sense for them to do so. The amount of interest that can be made off of billions of dollars alone can cover the cost of public relations and legal fees indefinitely. A twenty year long lawsuit, as is the case with Chevron in Ecuador, does not effectuate the kind of change necessary to make the system more efficient and secure. Political will is needed to change the system. The remediation efforts made thus far by Chevron seem to be a direct result of political pressure and media attention rather than the lawsuit. The current focus on environmental protection and human rights makes this the proper time to pursue such an agenda.
The bond programs proposed by the Correa administration are inventive but flawed. Ecuador has defaulted on three bond programs in the past decade alone. The last default occurred in December of 2008 on 3.2 billion in bonds. This history of default has given Ecuador a poor reputation with regard to bond sales. So far only two countries, Germany and Italy, have even expressed interest in the program with no other participants in the carbon market expressing a willingness to buy such bonds from Ecuador. Even if Ecuador could raise the $350 million dollars it requires to not mine the oil in Yasuni National Park it would not prevent the possibility of government default on the bonds which could damage future implementation of such a program in other areas of the world.
The most effective solution to the seeming conflict between indigenous rights, environmental preservation and oil mining is to encourage responsible mining techniques, require oil companies to consult local populations to minimize the effects of mining in the region and raising awareness with the public regarding the harmful effects of irresponsible mining. The technology required to mine responsibly already exists it need only be utilized. Oil companies need to start treating the rainforest like the ocean, sending workers and equipment in by helicopter rather than newly carved roads and mining for oil from fewer rigs spaced farther apart. Extended-reach drilling involves drilling a well down and then horizontally underground for up to 12 kilometers. By mining in this manner oil rigs can be placed 20 kilometers apart, leaving large swathes of forest untouched. Extended-reach drilling combined with re-injecting by-products of the mining process back into the empty oil wells can significantly reduce the impact of oil drilling on the local environment and would have prevented the damage experienced by the indigenous and colonial peoples in Ecuador. Governments can incentives this form of mining through tax breaks and reduction in import and custom fees. Educated consumers must continue to put pressure on oil companies to behave in a socially responsible way by consulting with native populations and minimizing and environmentally adverse effect of oil mining. Ethical oil production is possible with a two pronged approach by the government to educate oil consumers and also incentivizing environmentally sound oil drilling. As we debate and analyze how to more responsibly harvest energy we must always be mindful of the cost of failure, not only does unethical oil mining damage the environment and kill innocents there is the possibility that we will loss entire cultures, languages and knowledge which can never be recovered.