An Economic Essay about Preserving Part of the Ecuadorian Rain Forest

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Last updated: April 1, 2019

In this essay I am mainly concentrating on the Yasuni National Park, and the area surrounding it (i. e.

the home of the Waorani), and the effect(s) that oil companies have had in the area, and could have in the future. I will also put arguments forward for why the area should be preserved as well as some of the most important counter arguments. I intend to show that the end does not justify the means. The waoranis call themselves the bravest people in the Amazon.

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They are superb hunters and feared warriors who inhabit a world that is green, wet, and filled with the sounds of many creatures.Up until 1956 they had never had any contact with the modern world beyond the forest. Theirs is a unique culture that must be preserved and respected. In their minds is a knowledge of animals that is intimate and profound. It stems from a total reliance on the natural world. We (Tierra Viva) believe the rain forest should be preserved in all its glory, and therefore trees should not be cut down simply for short-run economical gain.

The rain forests of the world are dwindling in size at a phenomenal and alarming rate.Deforestation causes an estimated seventeen million hectares of rain forest to be lost globally every year. 1. This deforestation of the rain forest can be explained in environmental economics, through the concept/theory of market failure. It states that the depletion of tropical rain forests occurs at a suboptimal rate as economic decisions made by individual countries (e. g. Ecuador) do not take into account all the relevant social costs (and benefits). Oil companies are one of the major causes of deforestation.

The effects of oil companies in Ecuador in the past is startling and nothing short of an environmental nightmare. No matter what the oil companies say/have said oil spills and other types of accidents are inevitable (as history has shown), and even the most “ecologically sound” production methods produces a vast amount of toxic waste. Its impacts occur both in the exploration and extraction stages. In fact a recent study in Ecuador, with the help of the University of London made the discovery that residents of the oil zone face three times the cancer risk of average cancer risk of other Ecuadorians.

Some of the most startling findings were that these people suffer on average 3000% more cases of larynx cancer, 1800% more cases of bile duct cancer, 1500% more cases of liver and skin cancer, as well as 500% more cases of stomach cancer. 2. Every week 4.

5 million gallons of drilling by-products and toxic chemicals are dumped into the Amazon tributaries (Kimerling, 1993). 3. Oil development is a major cause of deforestation on Ecuador. In fact, Ecuador has the highest rate of deforestation in South America, it is losing a staggering 2. 3% (45,000 hectares) of its forests every year (World Resources Institute, 1991). . Crude oil has caused rivers and tributaries to become so contaminated that local communities (including the waorani) can no longer use them safely for fishing, bathing, and drinking.

Crops are contaminated as the soil and air is contaminated.Also adolescent girls have been sexually assaulted by oil workers (Accion Ecologica, 1993). 5. Other tests have shown that fishing, drinking, and bathing waters contain levels of cancer causing toxic compounds that are up to 1000 times higher than levels permitted by the U. S. Environmental Protection Agency’s safety guidelines (Institute for Economic and Social Rights, 1994).

. The tropical rain forests of the world (or what is left of them) serve a variety of functions. They supply numerous forest products (e. g.

nuts, fruits, oils, and maybe most important of all medicines). They act as a life support system as they absorb carbon dioxide (CO2) and give off oxygen (O2). They act as a storehouse of genetic diversity due to the numbers of species they support (many of which are undiscovered). Rain forests serve as homelands for indigenous people (e. g. Waorani), while giving others intrinsic value. They are precious environmental resources.Therefore I believe the world can ill afford to lose the biological treasures that Ecuador’s rain forest offers i.

e. we must not allow this jewel of the natural world to be affected by oil activity. Economic theory explains why rain forests are under threat in the following way. Several of the tropical rain forests benefits can be identified as types of public goods. Public goods are defined as those which exhibit consumption indivisbilities and are fully accessible to all. Consumption is said to be idivisible when one person’s consumption of a good does not diminish the amount available for others.

Several environmental resources can be categorised as public goods. 7. When consumption is indivisible at a global scale, the good is said to be a global public good. Tropical rain forests have traditionally been viewed as providing numerous global public goods e. g. the bequest value current generations derive from passing rain forests on to future generations, carbon sequestration, and biodiversity. In economic circles it is often stated that a rain forest’s global public good benefits can be held responsible (to a certain extent) for higher than the socially optimal level of deforestation.However it should be remembered that a forest’s public good benefits are not available only to the people of the forested country, but to people throughout the world.

But as James Kahn indicates, this type of situation potentially leads to a two-tiered market failure problem. 8. Firstly, if people outside a forested country value a country’s forest habitat, then it is likely that the level of rain forest preservation will be less than the socially optimal level.Secondly, if a country attempts to adopt efficient policies to stop/reverse this market failure, it has no incentive to consider preservation benefits to the people of the rest of the world.

The essence of this particular economic problem is that the global costs/benefits are not included in the cost/benefit analysis of the country that contains the rain forest. Therefore, the results of the cost/benefit analysis are inaccurate, yet give the impression of accuracy. Also many of the costs and benefits (figures) are impossible to quantify accurately in the first place.

Figure 1 can help explain the above situation. When a country thinks in terms of levels of forest preservation, it will equate marginal benefits with marginal costs as the point to be at, and will therefore preserve habitat at a level equal to Q1. However, it is important to notice that since rain forests provide public goods to much of the world, the social benefits of rain forest preservation will be much higher than those enjoyed by just an individual country. As such, a socially optimal level of preservation occurs not at q1, but rather at q*.The figure makes evident the point that the public goods associated with tropical rain forests drives a wedge between the marginal private and marginal social benefits of forest preservation. This disparity in benefits results in less than optimal levels of rain forest preservation (i. e. , excessive rates of deforestation).

Figure 1 Another method/approach that economists use to explain tropical deforestation is in terms of negative externalities. Much of the environmental impact on Ecuador’s rain forest can be put down to externalities created by oil company activity.Externalities occur when no market exists to register the scarcity of the resource. An externality is the effect of one party’s action upon other parties, who are not involved in the process. Many of the costs of oil development (in the past and present) were displaced on the Ecuadorian rain forest, its rivers and its people as the oil companies lacked the incentives to limit their wastes.

The cost of oil development was limited due to this displacement creating both rapid economic development and environmental degradation. In the 1970’s, at the height of oil development, the Ecuadorian government had no environmental regulations.This lack of government restriction, coupled with the lack of a market and zero prices subjected the rain forest to rampant environmental degradation. Economists argue that these externalities exist as owners of forest habitat do not have the incentive to incorporate preservation values into their decision making. This causes the marginal private cost of converting habitat to development purposes is less than the marginal social cost.

This can be illustrated in Figure 2, which shows that a private owner converts q1 units of habitat, which is greater than the socially optimal level of habitat conversion, q*.The excess level of activity at q1 essentially represents a negative externality associated with habitat conversion. Figure 2 The main point the above diagram and explanation makes is that whatever level of deforestation is optimal from a private (or a forested country’s) perspective a slower rate will be optimal if we looked at it from a global perspective. This argument remains the same, whether we view deforestation as a public good induced problem, or an externality related problem. In the case of the latter, there exists a disparity between the private and social costs of habitat conversion.In the case of the former, there exists a disparity between the private and social benefits of habitat preservation. But the underlying point is that, either way, deforestation takes place at a disproportionately high rate. Therefore I believe the rain forest should be preserved and other methods of income using the rainforest should be considered.

I believe some possible solutions are Eco-tourism, using the rain forests medicinal qualities, and rainforest property rights (this is inter-linked with medicinal qualities).Eco-tourism is a means by which these people (the waorani) can receive an income while at the same time maintaining their cultural integrity. It is also a way to help preserve the rain forest. Eco-tourism can show the waorani that surrendering their culture and ancestral homelands to the destructive appetites of the oil industry is not the only alternative they face. Eco-tourism can also be seen as a way of educating/making people aware of why it is so important to preserve this natural phenomenon. It can also help increase peoples awareness and appreciation of other cultures (i.

. the waorani culture). Although Eco-tourism can be seen as a ‘double edged knife’ i.

e. it has its negatives (along with its positives). It can cause rapid cultural change for indigenous people i.

e. change a sustainable traditional culture into one that is dependent on the outside world.This can be viewed as a type of ethnic genocide (similar to the effect the oil companies have), as they are exposed to people from many different cultures.

Also with the growth in popularity of Eco-tourism, will come the inevitable spin-offs i. . hotels, restaurants etc. This may end up indirectly having a similar effect to the oil companies (i. e. deforestation, colonisation, and pollution).

However I believe this should not be the case if the Eco-tourism is managed in the right way (i. e. in an environmentally focused, rather than economically/monetary focused way). Medicinal qualities of the flora in rain forests have always been known about.

In fact the tropical rain forest can be thought of as a type of lottery, with many participants (ticket holders). 9.Each participant/ticket corresponds to a different individual plant and each differs in its potential/actual winnings (as is the case in a real lottery), but here the winnings are in terms of medicines. Some of these tickets have already been done (been used) and some will be used at some point in the future. The social benefits of these tickets could be immense (i.

e. cures for AIDS, cancer etc), these can be seen as the ‘jackpot’ tickets. Some tickets await further biotechnological developments before their potential returns can be realised, and therefore if they are destroyed now, their benefits will never be realised.Though it should be said most of the tickets will ultimately provide no winnings in terms of newly available medicines (as is the case in a real lottery, there a lot of non-winning tickets).

The gist of the argument that I am putting forward here is that plant species within tropical forests should be viewed as a source of both current and potential medicinal value as this value can be huge and have a immense impact on the world, therefore maybe just on this reason alone the rain forest should be left alone!Though it should also be noted that the level of benefits is not known, so it is not possible to put an economic/monetary value on the medicinal qualities of the rain forest (although some economic commentators have tried in the past). Another potential problem is the recent development of genetically engineered synthetic drugs (substitutes for medicinal plant drugs). These are becoming more popular, as well as more effective and therefore this may drastically reduce the medicinal value of tropical rain forest plants, and therefore reduce the incentive to preserve the rain forest.Another problem is the issue of property rights. I will not really go into detail about this, but the basic problem is that with the way that the law is at the moment the country, which has the rain forest does not benefit much (if at all) from the discovery and sale of medicinal plants found in it. If this issue is not addressed there is little (if any) incentive for the government of the tropical rain forest country to buy into/believe in medicinal plants as a possible economical reason to preserve the rain forest. One solution to the environmental crisis often put forward is the idea of “sustainable development”.The most recognised and common definition for this was put forward by the World Commission on Environment Development (WCED) in, The Brundtland Report (1987).

It defined it as, “development that meets the needs of the present without compromising the ability of future generations to meet their own needs (WCED, 1987, pg 43)”. This is how the perpetual confusion over what “sustainable development” really means began. The WCED definition is purposefully vague, in that how do we define a current generations ‘needs’ and a future generations ‘ability’ to meet their needs?Also, what exactly is ‘sustained’, and for how long? In essence, the concept of sustainable development involves the structure of the “bequest package” the current generation turns over to the next. Ultimately, concerns over sustainable development are motivated by our normative concepts (preferences) of intergenerational and intragenerational equity. I do not believe sustainable development is a viable solution as it sanctions the idea of human exploitation, and therefore will inevitably (sooner or later) lead to the destruction of biodiversity as people cannot be trusted with natural resources usually (i. . I do not believe that man made capital should be substituted for the loss of natural capital). Ecuador should look for a long-term solution to its economic position, not the oil companies short-term solution.

What form this solution will take is still not 100% clear, but one thing is for sure, there must be an environmentally friendly solution or there may not be many (if any) people left to save.Ecuador must be realistic and accept the fact they will never be among the worlds economic elite and if they try to become part of the elite (by exploiting/destroying the rain forest) they will more than likely end up in a worst position than they started in (i. e. same level of poverty, but a massive increase in pollution). An argument often put forward by developing countries is that the loss of rain forests is justified on the grounds of economic development and this development is aimed at the poor in society who have a right to the benefits of the development.

As PetroEcuador’s Environment Unit Chief, Manuel Navarro states, “All of a sudden we have pressures from organisations from Europe, from the States, claiming the Amazonian jungle has to be untouched, the same way they’re demanding we pay off the debt: they’re still getting cheap export goods. I think its a little unfair the pressures we have from different sides. They say ‘Don’t use this, don’t touch this’, but do we have an alternative”.This quote highlights developing countries resentment of developed (First World) countries telling them not to continue with deforestation (interfering with their natural resources). The developing country believes the loss is justified in the name of economic development i.

e. they (developing countries) see action against pollution as a luxury to be considered only when the more pressing problems of raising living standards has been considered/addressed. This argument basically shows that developed countries are as much to blame (if not more) for these environmental problems as the developing countries.In fact it can be very strongly argued by developing countries that issues of intergenerational equity should be put to one side until the world can sort out the present problems concerning intragenerational equity that exist all around us.

I believe this is a very major stumbling point the world faces if it is to survive, and this issue must de addressed. In my personal opinion, I believe, a major step to solving this problem (and developed countries helping reverse the global damage, which is mainly their fault) is for third world debt to be cancelled.But I cannot realistically see this happening (unfortunately, for us all). Therefore I understand the predicament Ecuador (and other developing countries) are in, but a solution has to be found (and I think the possible solutions I have outlined can be economically/environmentally viable), as if current operational practices are not overhauled, Ecuador may be left so ravaged that other economic alternatives for this rich region, such as Eco-tourism and production of medical plants will be unfeasible.Also I believe if a solution is not found in the near future, (not meaning to sound too dramatic), there may not be anyone left to continue polluting (extinction of the race)! As is stated in the Gaia hypothesis. It states, if Gaia (the system) is knocked dangerously off balance (by human activity and waste disposal), it can repair itself.

But the process of repair only guarantees the systems survival and not the survival of any one (including human’s) species. 10.

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