SCS researcher in Environmental Economics, Dr Romain Pirard, wrote a commentary titled, Yasuni ITT: the virtues and vices of environmental innovation. Following this, Romain was interviewed by LEAVIT.
LEAVIT: As of 2023, the remaining carbon budget to limit global warming to 1.5°C is 380 Gt of CO2 emissions, while developed fossil fuel reserves could potentially contribute 915 Gt if fully extracted and burned (Oil Change International). In other words, there are 2.5 times more fossil fuel extraction projects underway than necessary to stay under the 1.5°C limit. Why has Climate Action solely focused on lowering Fossil Fuel demand ? What is your view on Fossil Fuel supply side initiatives?
ROMAIN PIRARD: Fossil fuels are produced and sold on a market. Without consumers, no market and no sales. When companies are criticized for doing something wrong, which could apply to a large range of goods and services beyond fossil fuels such as the use of plastic packaging, my first reaction is to say that consumers share the responsibility because they decide to buy this stuff hence incentivizing producers to go down that road. Of course we know things are not that simple and consumers often have no choice, or no time and resources to make choices, may be ill-informed, and that marketing and advertisement plays a big role in influencing consumers’ behavior. But in the end, my point is that the blame must be shared and there will be no sustainable solution without a higher level of responsibility by consumers and markets: everybody must contribute in their own way.
Having said that, many reasons might explain why policies have mostly addressed demand. One might be that it could be more reasonable to first limit demand so that there is no adverse impact due to shortages, in other words the system would have time to adapt and no shock would take place. Another one is obviously that enormous economic interests and associated lobbying power are an obstacle to making decisions. A third one is that if one decides not to move forward with exploration and fossil fuel production then another country or company will fill the gap – this is the well-know free-riding problem that justifies collective and coordinated action.
LEAVIT: Paradoxically, nations with low historical emissions are discouraged by Western countries from drilling, yet they continue to finance and subsidize their own domestic petroleum production. The US, UK, Canada, Australia and Norway account for 51% of the total planned oil and gas expansion by 2050. What is your view on Western countries’ hypocrisy ? What could be their contribution to developing oil producing nations?
ROMAIN PIRARD: It is undeniable that Western countries exhibit lots of hypocrisy in this space. While we need to acknowledge their efforts and actual emissions reductions, this is not enough due to their capacity to engage in the transition but also their historical debt as they are by far the main responsible parties for climate change. But one must also take note that there is no formal ban on investments in developing countries and that no international authority prevents investments in developing countries to engage in more production of fossil fuels. In reality, there is thus great liberty for developing countries to keep operating as they like and in a ‘business-as-usual’ fashion. In some cases, they are even encouraged to do so even if at odds with geopolitical objectives as is spectacularly illustrated by the abrupt change of policy by the US towards Venezuela.
Hypocrisy could be understood in two opposite ways: one is not doing more to slow fossil fuel production in developing countries so that they can keep using these for their own needs, another one is to have strong requests to such countries to leave resources in the ground while their own companies (or sometimes on their own land) keep investing and producing. To me the situation is not crystal clear and there are opposing forces and decisions at play. But let’s also not forget that there is no such thing as a benevolent group of developed countries that should be helping the rest of the world as all compete and support their own constituents.
LEAVIT: has identified three main reasons why Yasuni ITT failed and how it could be improve (https://www.leavit.info/yasuni-itt-initiative) What flaws do you see in the Yasuni ITT Initiative, and how would you suggest enhancing it given current international cooperation mechanisms?
ROMAIN PIRARD: One main flaw is the risk of leakage, i.e. not producing one ton of petrol in Yasuni leads to producing one more ton of petrol somewhere else. This is why the key is acting on demand: only the lack of demand for petrol can dissuade producers to invest and produce more.
Another flaw is the lack of credible commitments because their enforcement is all but guaranteed. In other words, nothing really prevents Ecuador to change their mind in the future, as is illustrated by the long history of defaults and debt restructuring in developing countries.
A third flaw is the message sent to other stakeholders that reduced production and investments in the fossil fuel business must be paid for, in other words it creates a precedent.
A fourth flaw, reflected in the whole narrative and associated arguments provided by Ecuador (and some other stakeholders), is that there are many other benefits enjoyed by Ecuador and its population due to the preservation of ecosystem services and indigenous communities. This suggests that Ecuador has an interest in not exploiting these reserves regardless of financial compensations for not producing petrol.
This means, to my opinion, that such an initiative was misguided. Then what to do? It is undeniable that reducing demand for fossil fuels is not going to be enough due to the numerous exploration and forage initiatives all around the world, which in themselves will jeopardize the internationally agreed emissions targets to limit global warming. But only a coordinated and collective action will be satisfactory and impactful, it will also ensure greater fairness if being applied equitably across countries. This would for instance address what remains the biggest argument against compensation schemes for reduced fossil fuel production, namely the leakage / free riding risk.
ROMAIN PIRARD: One main problem / limitation is the lack of permanence. All these decisions and agreements can be reversed anytime in reality, and this is compounded by several factors:
There is usually a “political” (in a broader sense, e.g. donors’ objectives to keep good relations with clients) interest in not enforcing conditions, namely not stopping payments when conditions are not properly met.
There is a lack of proper assessment of services eligible for compensation (e.g. some of these services can be assessed variously and results lack robustness) and monitoring (due among others to the related costs and lack of pursued funding for doing so over the years).
In many cases service providers are not fully understanding the schemes and associated conditions. In other words these are temporary solutions with shaky means of application and enforcement. They may only work in very specific conditions and should by no means be generalized to all situations.
LEAVIT : is a pioneering initiative exploring the use of climate finance incentives to compensate resource-cursed oil-producing countries for relinquishing oil development. In other words, updating and improving Ecuador’s Yasuni ITT Initiative with current international financial tools and cooperation mechanisms. What are your views on the Initiative and what advises would you give going further?
ROMAIN PIRARD: As said earlier, I am not very optimistic on the feasibility of such compensation schemes; on the other hand, something must be done on fossil fuels supply side to keep global warming within acceptable limits for the future of humanity, and beyond.
Therefore I would pose a couple of necessary conditions to meet to augment the chances of success :
Coordinated and collective action at world level for all supply-based compensation actions.
Coordinated efforts on supply and demand at the same time.
These two conditions stem stem from a lack of faith in stand-alone and isolated compensation actions, even flagship ones. These might at best have a varnish of success. If they are associated with highly valuable ecosystems and threatened and unique human cultures, at least they can contribute to other beneficial outcomes.
My advise is to keep searching for promising solutions that would be high profile enough to be replicated at scale and in a coordinated manner. Only this could hold some promise of success. As the challenge of climate change is probably unprecedented in its scale, all leads must be pursued and the mistakes of today may become the truth of tomorrow.