New opportunity for conservation finance in Ecuador?

Peoples Forests Partnership presented a legal analysis of constitutional limitations on private investment in carbon projects to Ecuador's National Assembly. This could benefit indigenous peoples and the country's goals before the United Nations.

Hopes are pinned on Ecuador's National Assembly, which has begun debating a bill to reform the Organic Environmental Code - Unified, including whether to participate in voluntary carbon markets under Article 6 of the Paris Agreement.

"Ecuador is at a critical juncture in deciding how to regulate its carbon, especially in relation to its forests," said Lider Sucre, regional director for Latin America at Wildlife Works, a member of the Peoples Forests Partnership. "These are funds that help communities improve their own quality of life while curbing deforestation," he added.

Ecuadorian forest.

On January 11, the Peoples Forests Partnership (PFP), an initiative that brings together companies working to finance projects related to maintaining carbon in forests – especially with indigenous peoples – was invited to present an analysis of Ecuadorian legislation related to carbon markets to the Biodiversity and Natural Resources Commission of Ecuador's National Assembly.

"We are looking to channel funding to indigenous peoples because deforestation rates in indigenous territories in Latin America are minimal," said Carla Cárdenas, Senior Manager of PFP and Climate Policy Advisor of Forest Trends' Territorial Governance and Communities Initiative, PFP Secretariat. "In areas outside these territories, we see deforestation rates of 60-70%, compared to only 0%-9% in indigenous territories," she added.

Bottleneck in the legal framework

Due to gaps in Ecuador's legal framework, it is currently risky to finance carbon projects in the country. According to Cárdenas, one obstacle is the way in which "prohibition of appropriation" is defined in Article 74 of the Ecuadorian Constitution.

"It can be deduced from Article 74 that no natural person, legal entity or collective can appropriate environmental services (including carbon capture and fixation) and, consequently, no national or foreign company can carry out direct negotiations for the payment of environmental services with indigenous peoples or others," said the expert.

In other words, companies and landowners in Ecuador are prohibited from making carbon-related transactions and benefitting from these resources.

"There is a legal gap on how to proceed in these cases and how to deal with the prohibition of appropriation established in the Constitution," she explained.

From left to right (top): members from the Biodiversity and Natural Resources Commission of Ecuador´s National Assembly, Carla Cárdenas (Forest Trends). Bottom: Lider Sucre (Wildlife Works).

The solution lies in the National Assembly

In the light of this legal bottleneck, the solution is regulatory change at the National Assembly level.

This institution should regulate when a transaction related to environmental services would fall under "appropriation" and when it would not.

PFP has presented three cases where payments for ecosystem services should qualify as"appropriation," and therefore a violation of Ecuador’s constitution:1) when the Ecuadorian State does not facilitate a transaction, meaning it must be the primary party authorizing and regulating all payments. 2)when a transaction occurs outside the Ecuadorian legal framework, and 3)if there is violence, deceit, and intimidation associated with the transaction.

What are the consequences of not regulating "appropriation"? For investors, the risk is legal insecurity due to possible claims of unconstitutionality of agreements and contracts. This is the reason that there has been no private investment in forestry in the country since 2008.

Many of the indigenous communities PFP works with have expressed that they are looking for resources to finance their conservation actions, but it has been very difficult due to legal limitations.

"More than anything else, we are missing a key opportunity at the international level," explained Cárdenas. "Since last year, Article 6 of the Paris Convention was reformed, allowing private companies to finance this type of projects and even compensate between countries".

Another key regulation that would relieve Ecuador’s bottleneck is related to authorization; that is, how the State will authorize a private individual to use or enjoy the common good (environmental services, including carbon transactions). There is currently no legal framework to authorize companies and landowners to participate in such transactions.

It is also important to regulate equitable distribution of economic benefits. "It would be very important for the National Assembly to establish the principles by which those who take care of the forests and maintain those environmental services receive fair and equitable benefits," said Cárdenas.

More information

• Watch the recording of the session here (in Spanish): https://bit.ly/3Xo33TI