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### Viewing cable 09QUITO204, ECUADOR'S MFA PITCHES YASUNI ITT CONSERVATION PROJECT TO

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09QUITO204 | 2009-03-24 19:15 | 2011-05-02 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Quito

`

    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

`