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Rumble in the Ecuadorian Jungle

By Toby Shute – Updated Nov 15, 2016 at 12:02AM

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Ecuador wants $3.5 billion ... or else the killing begins.

About two years ago, many friends forwarded me a clever Internet site whose owner threatened to cook and eat an adorable rabbit named Toby unless he received $50,000 via eBay's (NASDAQ:EBAY) PayPal by a certain date. It seems that a South American leader is now proposing a similar deal, but in this case, real plant and animal life is at stake.

Ecuador is home to one of the world's greatest biological treasures, Yasuni National Park. This UNESCO Biosphere Reserve hosts as many tree species as all of North America, the greatest number of insect species in the world, and several isolated tribal groups. The area also contains an estimated 900 million to one billion barrels of oil reserves, roughly one quarter of the oil export-dependent country's total. Aye, there's the rub.

President Rafael Correa has proposed his own version of Save Toby. Ecuador will "settle" for $350 million in annual payments for ten years, in lieu of granting oil concessions within Yasuni. National oil companies ranging from Petrobras (NYSE:PBR) to Sinopec (NYSE:SNP) are salivating over these oil fields, but Ecuador is giving the international community a year to consider the offer. Call it Save Humboldt's woolly monkey.

Now, before you dismiss this proposal as twisted extortion, I'll note that the U.S. has brokered similar deals in the past, albeit on a much smaller scale. The Tropical Forest and Conservation Act of 1998 contains provisions to offer debt cancellation in exchange for conservation initiatives. One key difference in this case is that the aid money would ostensibly be spent on broader social development, not solely on conservation. If that's so, it's not clear that the counterparties would be getting their money's worth.

I can support the underlying notion here. Nature conservation has economic value, which would be made somewhat more tangible with a robust emissions-trading market. As formulated, this deal seems to be a nonstarter, however. $3.5 billion is a lot to pay to merely delay drilling for ten years.

You know, this brings to mind another debtor nation facing a similar quandary. It, too, has a protected wilderness area sitting atop a major petroleum resource -- one that's several times larger than Yasuni's.

Perhaps we Americans are leaving money on the table by not seeking payment for preventing ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) from drilling the Alaskan National Wildlife Reserve. Our nature refuge may not offer the carbon sequestration capability of the dense Ecuadorian rainforest, but I suppose it couldn't hurt to pass the hat around while discussing climate change at the G8 summit. After all, we're doing our part by not doing anything. Right?

Related Foolishness:

Fool contributor Toby Shute would like to be paid for not engaging in environmentally destructive behavior. He doesn't own shares in any company mentioned. eBay is a Stock Advisor recommendation. The Motley Fool's disclosure policy does its part.

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