VZCZCXYZ0006
RR RUEHWEB

DE RUEHQT #0204/01 0831915
ZNR UUUUU ZZH
R 241915Z MAR 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0192
INFO RUEHBO/AMEMBASSY BOGOTA 8056
RUEHCV/AMEMBASSY CARACAS 3468
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 3116
RUEHBR/AMEMBASSY BRASILIA 4118
RUEHGL/AMCONSUL GUAYAQUIL 4211
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 0630
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS QUITO 000204 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET PREL SENV ECON EC
SUBJECT: ECUADOR'S MFA PITCHES YASUNI ITT CONSERVATION PROJECT TO 
WESTERN DIPLOMATS 
 
Ref.  A) 08 Quito 1497 
 
¶1.  (SBU) Summary.  On March 5, 2009 the Ecuadorian Foreign Ministry 
presented a revised proposal to forego development of oil fields in 
the environmentally sensitive Yasuni Park in exchange for 
international compensation.  The new initiative focuses on 
compensation based on carbon credits rather than the value of 
foregone oil production.  End Summary. 
 
A "Revolutionary" Proposal 
-------------------------- 
 
¶2.  (U) Foreign Minister Fander Falconi presided over the March 5 
meeting, and former Foreign Minister Francisco Carrion and former 
Quito Mayor Roque Sevilla briefed Western diplomats on the proposal. 
 The meeting was attended by Ambassadors from several European 
countries.  Falconi presented the Yasuni initiative as a 
"revolutionary" idea in which Ecuador would make development 
sacrifices on behalf of the global community.  The plan was first 
presented in June 2007 by President Rafael Correa and was initially 
called "Keeping Oil in the Ground" (reftel a). 
 
¶3.  (U) The Ishpingo-Tambococha-Tiputini (ITT) field constitutes an 
estimated 20% of Ecuador's total oil reserves.  It is located within 
Ecuador's Yasuni National Park, a UNESCO Biosphere Reserve in 
Amazonian rainforest with exceptional biodiversity, intact and 
contiguous habitat, and traditional indigenous populations.  The 
park is located within Ecuador's "Untouchable Zone," a 750,000 
hectare area with no road, infrastructure, hydroelectric, oil, or 
mining development.  This allows "uncontacted" indigenous people in 
the area to continue their traditional lifestyle without 
disturbance.  The GOE's original plan called for the international 
community to compensate Ecuador for half the value of the petroleum 
in the ITT field, which, at the time, was about $1.75 billion.  In 
exchange, Ecuador would agree not to exploit the field, thus 
protecting the biodiversity of the park by preventing deforestation, 
mitigating climate change by reducing carbon pollution from 
deforestation and from combustion of the oil, and supporting the 
indigenous communities in their traditional way of life. 
 
¶4.  (SBU) The March 5 meeting was to provide an update on the 
initiative and present a modified proposal.  The key difference is 
that the GOE now proposes using a carbon-pricing mechanism to value 
the reserves.  Sevilla said that exploiting the ITT reserves would 
release 410 million metric tons of CO2 into the atmosphere.  The 
mechanism he proposed for financing the initiative was modeled after 
the Kyoto protocol, and would consist of the GOE issuing 
"Certificates of Guarantee Yasuni" (CGYs), which would be classified 
as carbon bonds ("certified carbon credits") by the signatory 
countries for Annex 1 of the Kyoto Protocol.  Companies and 
investors would be able to purchase CGYs like other carbon credits 
through the European Trading System (ETS) and would register these 
purchases with participating governments.  The Yasuni initiative 
would also solicit voluntary contributions from supporting 
governments and individual contributors.  Noting the success that 
the Obama campaign had in raising large sums through a broad network 
of small donors, Sevilla presented a scenario in which individuals 
could purchase, either online or through cell phone transactions, 
"symbolic" barrels of oil that would remain in the ground.  Proceeds 
from the sales of CGYs would be placed in an international trust, 
whose directors would have a fiduciary responsibility to ensure that 
the funds are used to advance development goals.  The directors 
would only be able to spend interest from the trust, meaning that 
the benefits of the initiative would theoretically extend to 
perpetuity. 
 
Valuing the Reserves 
-------------------- 
 
¶5.  (SBU) The CGY bonds would be issued over a ten-year period, and 
the total amount issued would be for the full value of the 410 
million metric tons of carbon at ETS prices.  The GOE's estimates 
based upon carbon pricing have a value of $11.75 billion at October 
2008 ETS carbon prices ($29 per metric ton) and $7.9 billion at 
December 2008 prices ($15 per metric ton).  If based upon oil 
prices, the 820 million barrels in the ITT reserves have a 
GOE-estimated net present value (NPV) of $11.6 billion at the 
October 2008 West Texas Intermediate (WTI) price of $75/barrel, and 
an NPV of $3.3 billion at the December WTI price of $49/barrel. 
(Note: The ITT fields contain heavy oil.  Current Ecuadorian oil 
production sells at a discount from the WTI reference price, and the 
ITT production would likely sell at even a larger discount, so using 
 
the WTI reference price likely overstates the value of the oil.  End 
Note.) 
 
Use of the Proceeds 
------------------- 
 
¶6.  (U) There are five proposed objectives for the use of funds 
raised through this initiative: 1) Protection of 40 "Natural Areas" 
in Ecuador, which contain exceptional levels of biodiversity and 
several indigenous communities.  2) Natural regeneration and 
reforestation of 2.3 million hectares.  3) Upgrading Ecuador's 
energy network to make it more efficient.  4) Subsidies to encourage 
businesses and homes to convert to renewable sources of energy.  5) 
Financing sustainable development initiatives, including the 
exploitation of renewable energy resources.  Some of these programs 
might themselves be marketable for carbon credits or future 
financing for Reducing Emissions from Deforestation and Forest 
Degradation (REDD). 
 
State of the Project 
-------------------- 
 
¶7. (U) The Yasuni initiative has received backing from the 
Governments of Germany ($300,000) and Spain ($200,000).  Sevilla 
said the GOE was using these funds to perform studies on the 
project, which are to be completed in March 2009.  These studies 
will be presented to the German government, which will evaluate the 
initiative.  If it approves of the legal, political, and technical 
aspects, the German government will promote the certification of CGY 
bonds as carbon credits to other countries in the EU and the OECD. 
If an "important number" of European countries back the initiative, 
the GOE will begin issuing CGYs.  FM Falconi emphasized that this 
initiative still had strong backing from Ecuadorian President 
Correa, and suggested that it had also attracted a broad range of 
support from European governments, politicians, NGOs, and 
celebrities. 
 
Comment 
------- 
 
¶8. (SBU) There is little doubt that the Yasuni Reserve contains 
remarkable biodiversity and is worth preserving.  However, there are 
several aspects in the proposal that are problematic, including: 
the valuation of the project, using either the oil or carbon credit 
benchmarks; still undefined post-Kyoto rules for different forest 
uses; lack of clarity on the guarantees that the GOE will provide; 
continued pressure to develop the petroleum reserves; and likely 
Ecuadorian resistance to an internationally managed fund because of 
sovereignty concerns.  In addition, within Ecuador there are many 
other areas that equal Yasuni in the scope of their biodiversity, 
and these funds could probably be applied even more effectively in 
protecting these areas. 
 
Hodges