A new initiative to fight climate change and conserve forests by leaving oil in the ground has taken off in Ecuador, which hopes that other countries will contribute to a fund and share the costs of forgoing oil revenues.

Martin Khor

WHAT would a country’s leaders do if oil reserves were discovered beneath the tropical rain forests of that nation’s premier national park?

The government would naturally be in a dilemma. If the forests are destroyed to extract the oil, the country and the world would lose the national park and its biodiversity-rich forest.

Moreover, the extraction and use of the oil would release a lot of carbon dioxide into the atmosphere, contributing to climate change.

But if the oil were to be left in the ground in order to protect the forests and avoid emissions, the country would lose a lot of export earnings and state revenues that could be used for development. Economists call this an opportunity cost.