ENVIRONMENTAL LIABILITIES OF TRANSNATIONAL COMPANIES:

The Chevron Texaco case in Ecuador and Climate Justice

J. Martinez-Alier

ICTA Universitat Autònoma de Barcelona4 July 2012

Environmental Liabilities

• In the balance sheet of any company, there are Assets and Liabilities (or Debts).

• In German this is called Aktiva and Passiva - what the firm has (Vermögen) and what the firm owes (Schulden).

• In the Latin languages, the same words are used. In Spanish, Activo and Pasivo.

• This lecture is on Environmental Liabilities or Pasivos Ambientales, which do NOT appear in the balance sheets unless they are claimed by the potential creditors through court cases or through direct action, or unless there are state regulations to that effect.

Macroeconomic accounting

• As the companies do not include environmental liabilites in their accounts, this means that they do not appear either in the macro-economic accounts.

• For instance, the costs (either the damage costs or the potential reparation or remediation costs) of oil spills in the Amazonia of Ecuador or Peru, or in the Niger Delta, do not appear (as a rule) in the macro-economic accounts of Ecuador, Peru or Nigeria.

Externalities: market failures or successful cost shifting?

• Environmental costs are often called “externalities”, precisely because they remain outside the economic accounts.

• Economists say that externalities arise because of the failure of the market to internalize costs into the price system. Thus, Nicholas Stern wrote that climate change was the largest market failure ever.

• We could set up a competition, which is the Greatest Externality Ever? Climate change? Biodiversity loss? Nuclear waste? Loss of cultures and languages?...

Externalities as successful cost shifting

• From political science, one could attribute the existence of externalities to lack of adequate institutions, to failures in governance (e.g. failure in the implementation of the 1992 treaties on climate change and biodiversity loss).

• From ecological economics and political ecology, we see pervasive externalities as Cost Shifting Successes (K W Kapp, 1950).

Who pays for the environmental liabilities?

• One could in theory imagine an industrial economy where all the environmental costs (counted as damage costs or reparation costs) would be included in the accounts.

• Immense technical difficulties of doing so. E.g. how to count the economic values of biodiversity loss, what to include, which discount rates to apply. We do not know which species are disappearing.

• In any case, the pattern of prices would be VERY different, the whole economy would be different.

Claims for payment of environmental liabilities

• We are not arguing therefore that externalities should be internalized, this is a naive perspective.

• The economy works in practice by shifting costs to poor people, to future generations, and to other species. How could a growing industrial economy work otherwise?

• Sometimes, however, there are complaints. Environmental liabilities appear in the public scene when there are complaints, or when there are sudden accidents (BP in the Gulf of Mexico, 2010, TEPCO in Fukushima, 2011)

• The pedagogy of catastrophes. Catastrophisme éclairé (Jean Pierre Dupuy).

• The Chevron-Texaco case in Ecuador.

Texaco – in the northern Amazonia of Ecuador

La selva es nuestro hospital …

Fotos: KS, LS a Oil in Ecuador. A human energy story (H.Quante), www.texacotoxico.org

la selva es nuestro mercado …

la selva es nuestra universidad …

Texaco (Chevron) extracted 1.500 Milllion barrels of oil from 1965 to 1990. To save costs, the company threw the “extraction water” to ponds that frequently overflow, and which were not lined to prevent seepage. It threw over 18 000 million galons of “extraction water” to the environment.

Judge Zambrano’s decision of 14 Febr. 2011 quotes Chevron-Texaco’s sources recognizing over 15 000 million galons.

Gas has been flared, but (different to the Delta of the Niger) this has not been a matter of controversy in the court case.

Many indigenous groups living in the forest suffered very much: Cofanes, Secoyas... Two groups (Tetetes i Sansahuari) went extint.

Settlers were attracted by the roads openened by the oil company, they also suffered from pollution. The court case has been supported by both indigenous and settler populations. One main leader of the Frente is Luis Yanza, and the local lawyer is Pablo Fajardo, both from settlers (colonos) families.

The Chevron-Texaco case in Ecuador, the Shell case in Nigeria…

• What were the real costs of oil extracted in Ecuador by Texaco (now Chevron) between 1965 and 1990? What are the real costs of oil extracted by Shell in the Niger Delta since the 1970s?

• Both companies have offered a few million dollars or euros from time to time for remediation, but both are now involved in court cases where the costs are assessed (by the plaintiffs and/or the judges) in billions of dollars or euros.

The Chevron-Texaco case in Ecuador

• On 14th February 2011, Judge Zambrano in a court decision in Sucumbios, Ecuador, fined Chevron Texaco with USD 9.500 million that would be doubled unless Chevron apologized within 15 days to the victims of pollution.

• This court decision was ratified on 3rd Jan 2012 before a three-member court in Sucumbios, it is on appeal in a national court in Quito.

• Best article: Sarah Joseph, 'Protracted lawfare: theTale of Chevron Texaco in the Amazon', (2012) 3(1), Journal of Human Rights and the Environment 70-91.

Why USD 9.500 million?

• The court decision of 3rd January 2012 can be executed in countries where Chevron has properties (like Canada, Brazil, Argentina, Venezuela and many others).

• Judge Zambrano’s decision of 14th Febr. 2011 is well argued, it reviews the case since it started in 1993.

• It is available in Spanish and also in English in the website of Business & Human Rights. It has 188 pages.

Why USD 9.500 million?

• From the start of operations in 1970 to 1990 Texaco took 1,500 M barrels of oil from Ecuador.

• The payment that Chevron-Texaco must do now is then of the order of 6 dollars per barrel.

• One must take into account the depreciation of the dollar and also the time that has passed since then. It looks like a reasonable amount.

Which standards did Texaco use?

• Judge Zambrano focused mainly on two issues.

• First, the dumping of extraction water into the environment (instead of reinjecting it, or keeping it in properly designed ponds).

• Second, the damage to human health. The evidence was collected in in situ judicial inspections, listening to the local people. “Popular epidemiology”.

Which standards did Texaco use?

• The technology for water reinjecting already existed at the time. Judge Zambrano mentions a Primer of Oil Production of 1963 co-authored by Texaco engineers.

• This technology was not applied in the Amazonia of Ecuador to save costs, increasing Texaco’s profits and increasing also the likelihood of damages.

• Standards in Amazonia should have been more strict that in other ecosystems.

“Popular epidemiology”• Phil Brown, Popular Epidemiology and Toxic Waste

Contamination: Lay and Professional Ways of Knowing, Journal of Health and Social Behavior, 1993, 33 (pp. 267-281).

• Judge Zambrano had available a study by Carlos Beristain, Las palabras de la selva, based on interviews with memories of cancer and other illnesses. There were few doctors and no official records in the area. Beristain shows that cancer cases increase in the vicinity of oil wells and extraction water ponds, relying on local memory.

• This evidence had been used by the court-appointed “perito” Richard Cabrera when establishing a figure of USD 27.000 million as compensation. Cabrera’s work was refused by Chevron-Texaco and discarded by the judge.

The items in the compensation

• At the end, Judge Zambrano determined that Chevron Texaco must pay USD 9,500 million (and double, if there is no apology) into a Trust Fund set up by the Frente de Defensa de la Amazonia (not the government or any province of Ecuador) on behalf of the plaintiffs in this “class action suit”, acción popular.

• The beneficiaries would be tens of thousands of people in Sucumbios and Orellana

The items in the compensation

• USD 600 million for cleaning up groundwaters• USD 5.396 million to clean up the soils in and around the

wastewater ponds (based on the area in question).• USD 200 million (10 million per year for 20 years) to

recuperate flora and fauna• USD 150 million to bring drinkable water into the area.• USD 1.400 millones for damages which cannot be

repaired such as lost health• USD 100 million for cultural damages to indigenous

groups and for “ethnic restoration”• USD 800 million to improve public health in the area. • Then, 10% on top of the above sums was granted to the

Frente de Defensa de la Amazonia for management expenditures.

History of the Texaco court case

• In 1993 a “class action” suit against Texaco was brought in a court in New York under the ATCA (the Alien Tort Claims Act). Indigenous and settler representatives went to New York.

• The company insisted (as so often has happened in other ATCA cases) that the US court was a forum non conveniens.

• In 2003 the case went to Ecuador (Sucumbios), obviously a better place in order to do local inspections and ask local witnesses. Chevron agreed to this.

Other ATCA cases

• There have been many other ATCA cases. For instance, on the DBCP nematicide in banana plantations (that causes sterility), against Dole, Dow Chemical… Also in mining and oil extraction conflicts, in Latin America and elewhere.

• It seems that for European, Canadian, Chinese companies, there is nothing similar to the ATCA legislation. The current case against Shell in The Netherlands is important in this respect.

Shell in Nigeria

• There have been many attempts to bring Shell to court for damage done in the Delta of the Niger due to oil spills and gas flaring. Nigeria has been the largest oil exporter in Africa, number 11 in the world. The Delta of the Niger is the “world capital” of oil pollution.

• One court decision on 5th July 2010 by Judge Ibrahim Buba awarded damages worth USD 105 million to a small community, Ejama Ebubu, for oil spills since 1970 in an area of only 2.5 km2. The plaintiffs first went to court in 2001 after the end of the military dictatorship.

From The Hague they look at Sucumbios in Ecuador

• A court case against Shell was accepted in The Netherlands in 2009. (Shell must face Friends of the Earth Nigeria claim in Netherlands, Terry Macalister, The Guardian [UK], 30 Dec 2009).

• The plaintiffs, fishers and peasants of the community of Oruma,

claim that Shell has not used international standards in its operations. Health has been affected by oil spills and gas flaring.

• The case at hand is an oil spill on 26 June 2005 in Oruma and oil spills in two other communities.

• The Shell company argued on 13 May 2009 that the The Hague court had no jurisdiction on the case, because it took place in Nigeria. But on 30 December 2009, the court accepted the case. It will start to be argued in September 2012.

CERCLA: retroactive obligations

• Although not directly relevant for a case in Ecuador, in the US a company like Chevron would have been very much aware of the Comprehensive Environmental Response, Compensation, and Liability Act – CERCLA, also known as the Superfund.

• This Law was enacted on 11 Dec. 1980 (just half way through Texaco’s presence in Ecuador). It imposes retroactive obligations. Firms have to pay compensation for damages and they have to clean the pollution left behind. If firms do no longer exist (and the polluted sites are “orphan”), then compensation and remediation are to be financed by the Fund constituted by a charge or tax on the oil and chemical industries.

Why the increasing number of ecological distribution conflicts?

• The increased social metabolism causes resource extraction conficts (fossil fuels, other minerals, biomass) and also transport conflict and waste disposal conflicts.

• The main waste disposal conflict is related to the excessive amounts of greenhouse gases. Who is the owner of the atmosphere and the oceans as dumping places for carbon dioxide? How to achieve Climate Justice?

Conflicts on resource extraction, on transport, on waste disposal

• Resource extraction: mining conflicts, fossil fuels,biomass (paper, biomass for agrofuels, fisheries…)

• Transport – new roads, etc (e.g. IIRSA in Latin America and the Brazilian public works “empreiteiras”)

• Waste disposal, greenhouse gases, also shipbreaking, e-waste exports… (Basel treaty)

Neoliberalism is NOT the issue

• Although it is true that the Washington Consensus led to new laws on mining in Latin America, although it is also true that transnational US or European companies have much political power…

• the March of Social Metabolism towards the “commodity frontiers” would be similar under a Keynesian social-democratic economy

• and it does no matter very much if it Petrobras or Repsol or Oxy or a Chinese company which takes up your oil from indigenous territories in Amazonia.

Social Metabolism and increasing Environmental Conflicts

• Industrial economies, even without economic growth, need fresh supplies of energy and materiales from the commodity frontiers.

• The energy in the fossil fuels is “dissipated”, cannot be used again. The materials are recycled only in part (copper, aluminium, steel, less than 50%).

• Moreover the world economy is still growing, and population will grow until 2045 or so.

• Therefore, increasing pressure at the “commodity frontiers” and also increasing waste disposal conflicts.

CERCLA, and climate change debt• In Copenhagen 2009, in Cancun in 2010 (and in Durban 2011)

some civil society groups and Southern governments push forward claims for the repayment of the “ecological debt from North to South”. This is a very large environmental liability.

• Unexpected support for this position came from Jagdish Bhagwati, Columbia University, New York, in the Financial Times, 22 Febr. 2010.

• Leaving aside the activist literature on the Ecological Debt since 1991 (www.deudaecologica.org), Bhagwati wrote that the US, confronted with an internal legacy of pollution after the Love Canal scandal, enacted the 1980 Superfund legislation.

• This law implies “strict” liability, applicable even when it was not known at the time that materials were toxic. Something similar to CERCLA should apply to excessive per capita carbon dioxide emissions also.

Ecuador: the Yasuni ITT proposal, an initiative from the South

• The experience with oil extraction in Amazonia + the debates on climate change

• Both led to Oilwatch’s proposal in 1997 to leave oil in the ground in areas of high biological value and with threatened indigenous populations.

• Beneficial side-effect: preventing CO2 emissions.

• This initiative was officially adopted in Ecuador in 2007, for the ITT fields in the Yasuní Natural Park.

Other initiatives

• How to strengthen environmental liabilities legislation (such as the European Environmental Liability Directive of 2004), so that they are applied also overseas?

• How to bring to court and get reparations from transnational or national companies such as Chevron and Shell and others? What about an International Court for Environmental Crimes?

• How to link these issues with the general claim against Ecologically Unequal Trade? Should OPEC tax oil exports to subsidize renewable energies?

• Who will pay the Ecological Debt from North to South that arises from resource extraction and waste disposal (excessive carbon dioxide emissions and other waste)?

Will environmental justice be done?

• I would like environmental justice to be done against transnational companies in overseas territories, and also against rich states in the climate justice issue.

• Instead, Lawrence Summers´ principle is applied as a matter of course to resource extraction or waste disposal.

• Nevertheless, for the analyst, if justice is not done, this is also interesting. It supports the idea that the economy causes pervasive externalities, the economy regularly achieves cost-shifting succeses.

A political view of externalities

• As Martin O’Connor wrote 20 years ago, a zero price for an environmental good or service should signal non scarcity of that good or service relative to the demands on it over the relevant time horizon.

• Recognising that a good is ‘scarce’ should then result in a positive price. But not if the demands of those persons — present or future — for whom scarcity means physical non-availability are not heard.

• A zero price may signal not non scarcity per se, but a relation of power in a situation of conflict.

Will Chevron Texaco at the end of the day pay a zero price, or a low price, for the pollution it caused? Will Shell pay nothing or little for what it has done ion the Niger Delta? And Rio Tinto in Bougainville? Are these companies powerful enough?

Will rich people pay a zero price to dump CO2 in the oceans and the atmosphere?