II. International Standards, Sustainable Development, and Corporate Responsibility

The call for TNCs to serve as stewards of environmental and social responsibility in the developing world can be seen as a continuation and expansion of discussions about the role of business in promoting sustainable development, that gathered force over the last decade in the wake of the 1992 United Nations Conference on Environment and Development ("UNCED"). As governmental and nongovernmental actors prepared for UNCED, also known as the Earth Summit, representatives from industry promoted the idea that corporations can and will play a key role in implementing sustainable development. The Earth Summit became the first major United Nations-sponsored global conference with strong business participation, led by the International Chamber of Commerce (ICC) and the newly-formed Business Council for Sustainable Development. At the Earth Summit, governments agreed that the current course of development is unsustainable, and pledged to change course.

Since then, the term "sustainable development" has become popular with governments, industry and nongovernmental organizations (NGOs). Its meaning, however, remains poorly defined. In essence, the concept of sustainable development recognizes the need to integrate environmental and development concerns and decision-making, in order to ensure that development not only meets the needs of present generations, *295 but also is fair to future generations. In a prelude to the greater controversy to come, many environmentalists were disappointed by the failure of governments at the Earth Summit to define global rules to regulate corporate conduct to achieve sustainable development, and were skeptical of expressions of corporate goodwill. The under-stated reality, however, seemed to be that governments were counting on private corporations to carry out and pay for sustainable development.

One arena where the trade debate is played out with real world consequences is the development of oil and gas fields in indigenous territories in Amazonia. The Amazon Rainforest is the world's largest remaining humid tropical forest. It contains the greatest biological diversity of any known ecosystem, is a natural carbon reservoir, and is believed to contain twenty to twenty-five percent of the world's flowing fresh water. It is generally regarded as an environmentally sensitive region, and is home to hundreds of ethnolinguistic groups of indigenous peoples whose health, well-being and cultural survival are closely linked with environmental quality. Oil and gas exploration and production are industrial activities. Among other environmental impacts, they typically generate large quantities of wastes with toxic constituents, in addition to presenting risks of oil and chemical spills.

"Saving the Rainforest" became a popular cause with environmentalists and the public in the late 1980s. Around 1990, documentation of irresponsible oil field practices in Ecuador's Amazon region by the U.S.-based TNC, Texaco, and other companies, added a new issue to the rainforest *296 agenda. The revelations spawned a surge in national and international concern about the impact of oil development on the environment and human rights in tropical forests, and buttressed longstanding local grievances. In response to growing international and local conflict and confrontation, some TNCs acknowledged that national governments have not implemented meaningful environmental regulation, and that local communities bear the costs of irresponsible development without sharing in the benefits. They publicly pledged to change their practices, and implement environmental protection and community relations measures that go beyond what is required of them by national governments in host countries. While recognizing that there have been problems in the past, a growing number of international companies--including Occidental in Ecuador--now claim to voluntarily abide by "international standards" or "best practice." Although corporate officials generally cite ethical rather than legal obligations and responsibilities, national laws in a number of countries, including Ecuador, include general provisions that, in theory, require oil companies to abide by unspecified "international standards."

*297 The emerging recognition by some governments and TNCs that a double standard of environmental protection is no longer appropriate could be a significant development in government and corporate policy in Amazonia. Nonetheless, the claim or requirement to abide by "international standards," "best practice" or some other variation of "world class," "responsible" standards and practices risks becoming a hollow platitude in many areas--and undermining rather than promoting national environmental law-- because affected communities, environmental and human rights advocates, and even government officials and policymakers do not really know what it means. To date, neither governments, industry, nor the academic community have clearly defined "international standards" and "best practice," nor determined how to measure *298 compliance. Like "sustainable development," the terms have become fashionable in corporate, governmental and some NGO circles; however, most of the public discourse has been very general, focusing on principles rather than the specifics of how to achieve them. Especially in the corporate world, the terms are not used to refer to binding regulatory requirements, but rather, refer to non-binding goals.

Most written commitments by international oil companies are general and inexplicit, and allow for considerable leeway in how to interpret them. Even the most innovative companies have not yet matched their claims--that they can extract oil and gas from fragile tropical forest ecosystems without harming the environment or local populations--with the information that is needed to verify their accuracy. Government agencies continue to depend on training by the industry they are charged with regulating, and rely on industry analyses of environmental and public health issues. Environmental decision-making and monitoring are typically carried out behind closed doors, without transparency or meaningful participation by affected communities and other stakeholders. On an international level, oil field standards and practices vary considerably in different locations. As a result, TNCs in the tropics essentially pick and choose which standards to apply, and how to measure compliance.

III. Occidental in Ecuador--Corporate Policy and Operations

According to corporate officials, Occidental is the largest U.S.-based producer of crude oil in Latin America. In Amazonia, the company has conducted exploration and production activities in Ecuador, Colombia and Peru. In the words of Occidental Oil and Gas Corporation's Worldwide Environmental Manager, Clark Hull, "down there, we're the big *299 guys." Production facilities in Ecuador are the newest major project by the company. As a result, they incorporate Occidental's highest environmental standards. According to Hull, "for Oxy (Occidental), Ecuador is the top." Activities there began in 1985, after the company's Ecuadorian subsidiary, Occidental Exploration and Production Company, Sucursal Ecuador ("Occidental Ecuador"), signed a contract with Ecuador's national oil company (CEPE, now Petroecuador) for the exploration and exploitation of hydrocarbons in a 200,000-hectare area designated as "Block 15." Efforts to improve environmental practices and community relations began around 1990-91, after revelations about irresponsible oil field practices in Ecuador's Amazon region put a spotlight on the industry there. At the time, Occidental had conducted some oil exploration, but had not yet begun production activities.

Although Occidental prefers to maintain a low public profile, the company's Ecuador operations have nonetheless been promoted within selected circles in industry, government, NGOs that are considered "reputable" by the company, and local communities, as a successful new model of responsible "world class" environmental protection and community relations." For example, in 1996, The Houston Chronicle reported that Occidental's production "seems a model of how oil can be extracted in environmentally sensitive areas of the tropics." The following year, Oil and Gas Journal reported that Occidental "has implemented a comprehensive strategy of strict environmental protection measures and aggressive community relations initiatives" in Ecuador, and characterized the undertaking an "unqualified success" and a "world class" environmental operation. On a local level, Occidental has repeatedly assured residents--who are aware of environmental devastation caused by the continued use of antiquated technology by other oil companies *300 in the region--that its operations use "tecnologia de punta," cutting edge technology.

Occidental has also produced a glossy Spanish-language brochure, entitled "Oxy, Certificada ISO 14001" ("Oxy, ISO 14001 Certified"), and a short English-language video called "The Human Face of Petroleum." These materials paint a portrait of corporate responsibility. They say the 'right things,' and avow a commitment to protect the environment, respect indigenous cultures, be a good neighbor, and promote self-reliant sustainable development. Color photographs show proud and smiling indigenous residents and greenery in and around oil field installations. Even roofs, tanks and pipelines have been painted green.

The Ecuador materials are consistent with Occidental Oil and Gas Corporation's published corporate policy. Applicable worldwide, the company's "Health, Environment and Safety Management System ("HESMS") Guidance Manual" begins by affirming a commitment to "the highest standards of ethical conduct and social responsibility," and continues:

A key element in the area of social responsibility is our commitment to conduct our business in a manner which protects the environment, maintains a strong safety program for the workplace, and promotes sound occupational health standards among our employees.

The manual includes a "Good Neighbor Policy" and ten "Health, Environment and Safety Principles." Practices in Block 15, however, do not match the company's promises. Notwithstanding a worldwide policy to "support the concept of public accountability for HES [Health, Environment and Safety] performance and . . . report on our progress in measurable terms," Occidental has refused to fully disclose the environmental standards it applies to operations in Ecuador, or information that is *301 needed to verify corporate claims of environmental excellence. In addition, the company's community relations are, from the perspective of local residents, characterized by serious problems. Among other issues, representatives of indigenous Quichua who live near wells and production facilities say that recent efforts by affected communities to participate in environmental monitoring and gain access to information about environmental standards and practices have been rebuffed by Occidental, and a number of grievances and concerns have not been resolved.

Located in the upper Amazon basin, Block 15 crosses two major rivers, the Napo and the Aguarico, to the east (and downstream) of the oil boom towns, Puerto Francisco de Orellana (Coca) and Nueva Loja (Lago Agrio), respectively. It includes lands that have been titled to indigenous Quichua who live on and around the Napo River, and indigenous Secoya and Siona who live on and around the Aguarico River. Block 15 also includes lands that have been designated as protected natural areas under Ecuadorian law: the entire Limoncocha Biological Reserve and Pañacocha Protected Forest, as well as parts of Yasuni National Park and Cuyabeno Wildlife Reserve.

Occidental initiated its search for oil in the western part of Block 15, conducting seismic studies and drilling exploratory wells. In July 1992, the company declared the comercialidad, or commercial marketability of early discoveries, and three weeks later Petroecuador authorized Occidental to begin extraction operations. Production began in mid-1993. *302 In 1995, Occidental and Ecuador's government reached an agreement to expand exploratory activities throughout the remaining ninety-seven percent of Block 15. The first exploratory well under that program was drilled in 1996 in the southeastern corner of the Block, in the remote Quichua community of El Eden. Named Eden-1, the well located commercially valuable oil (Eden-Yuturi reserves). According to Oil and Gas Journal, Occidental estimates Block 15's total potential reserves at 300-400 million barrels, an amount equivalent to roughly fifteen to twenty-one days of petroleum product consumption in the United States.

In 1997, Occidental proposed to re-negotiate its contract with Petroecuador, based on reforms to Ecuador's Law of Hydrocarbons that were intended to enhance the country's attractiveness to foreign investment in the oil and gas sector. In May 1999, Occidental and Ecuador, through Petroecuador, signed a modified contract. This contract ("the Contract"), which is currently in effect, contemplates the continued expansion of exploration and production in Block 15 and two adjacent areas. Under the Contract, Occidental has the obligation and exclusive right to operate existing facilities in Block 15 until 2012, and to find, develop and operate subsequent discoveries until 2019.

According to corporate officials, Occidental produces some 18,000 barrels of oil per day, from twenty-two production wells located on six drilling platforms. A seventh platform is the site of a waste injection well. The platforms and a central production facility ("CPF") are connected *303 by a network of unpaved roads, most of which were built by Occidental for the operations. Alongside the roads, buried pipelines (flow lines) carry a mixture of oil, natural gas and formation water--extracted from the wells--to CPF. Two flow lines cross under the Napo, but a bridge has not been built across the river. Instead, barges have been used to carry personnel, vehicles and equipment across the river at two locations.

At CPF, crude oil is separated from the natural gas and formation water. Oil field formation water is also commonly known as brine because it typically contains toxic levels of salts, in addition to hydrocarbons, heavy metals, and other chemicals. In Block 15, the ratio of brine to oil (water cut) is high, and, according to the company, roughly 65,000 barrels (2.73 million gallons) of brine wastes, better known as produced water, are generated every day. The separation process also generates some 4.5 million cubic feet of gas every day. According to Occidental, thirty percent of the gas is used by the company as an energy source for oil field operations; the rest is burned as a waste at CPF. The forty-hectare site also includes storage and pumping facilities, living quarters for workers, offices, a sewage treatment system, and equipment maintenance facilities. Additional flow lines carry produced water from separation facilities to injection wells.
CPF and the production and injection wells are located in four Quichua communities--Rio Jivino, Limoncocha, Itaya and Pompeya. Many other communities are potentially affected by those operations. For example, the Quichua community of Santa Elena is located across from the community of Limoncocha on Limoncocha Lake, and there are dozens of communities along the Napo River, downstream from the facilities. In addition, Occidental operates a landfill in the Shuar community of Yamanunka. From CPF, a 16.5 mile (27.5 km) secondary pipeline transports Amazon crude to Shushufindi Central Station currently owned and operated by Petroecuador. From there, it is transported via pipelines owned and operated by Petroecuador to Lago Agrio, and thence, over the Andes Mountains to the Pacific coast via the trans-Ecuadorian Pipeline *304 System ("SOTE"). A refinery and an export terminal are located on the coast.

By law, Occidental must maintain a five-year development plan ("Development Plan"), and update it on an annual basis for approval by Ecuador's Ministry of Energy and Mines ("MEM"). In an interview, corporate officials in Quito confirmed that Occidental seeks to incrementally expand operations throughout all of Block 15. However, they refused to disclose details, other than to say that the company planned to drill six wells over the next year. Three exploratory wells were slated for Secoya-Siona territory; officials refused to disclose the locations of the other wells. Subsequently, residents reported drilling activities for additional production wells at existing platforms in Itaya and Pompeya, and the construction of a new platform for an exploratory well in the Quichua community of Sani Isla, in the eastern portion of Block 15. Additional seismic studies are also underway.

Although Occidental refuses to disclose its Development Plan, the company did provide a copy of the Contract, without the annexes, for this study. The Contract contemplates the development of new production operations in the Eden- Yuturi oil fields; however, construction of those facilities has reportedly been delayed because SOTE is already operating at full capacity. As a result, any additional production from new facilities in Block 15 could not be transported out of the Amazon region economically. Plans to build a second trans-Ecuadorian pipeline have been stalled for years because of political opposition in Ecuador.

IV. Environmental Law and the Roots of Inequality Under the Law in Ecuador

In form, Ecuador is a constitutional democracy. In practice, democratic institutions are fragile, and a strong executive generally dominates the government. Longstanding weaknesses include pervasive corruption *305 and a discredited judiciary and political class. A popular saying, "the law is only for those with the ponchos," reflects the general belief that *306 only the most marginal citizens--the indigenous peoples--are not above the law. Indigenous peoples comprise an estimated forty percent of Ecuador's population. Ecuadorian society, however, is characterized by deep racism, widespread poverty, extreme inequality, and discrimination against indigenous peoples and the poor. Illiterate Ecuadorians were not allowed to vote until 1979. Amazonian peoples live far from the centers of power and seat of government; poor transportation and communication services augment the geographical distance. Cultural, historical and linguistic distances further separate Amazonian peoples from their government. To the government, Amazonia is a vast land with few people, a frontier to be conquered, a source of revenue for the debt-burdened state, and a safety valve for land distribution and populat

More in the comlpete document...........................
International Standards In Ecuadors Amazon Oil Fields: The
Privatization Of Environmental Law

Judith Kimerling

Copyright © 2001 Columbia Journal of Environmental Law; Judith Kimerling

I.     Introduction ............................................. 290
II.    International Standards, Sustainable Development, and Corporate
      Responsibility ........................................... 294
III.   Occidental in Ecuador-Corporate Policy and Operations .... 298
IV.    Environmental Law and the Roots of Inequality Under the Law in
      Ecuador .................................................. 304
V.     Contracts and the Rule of Law ............................ 314
VI.    International Standards and Practices .................... 319
        A. Contractual Provisions .............................. 319
        B. ISO 14001 ........................................... 327
        C. Best Practice ....................................... 334
VII.   The Privatization of Environmental Law ................... 338
VIII.  Environmental Management Plan ............................ 352
        A. Standards and Practices ............................. 353
        B. "The Purloined Data" ................................ 361
IX.    Implementation of Major Design Decisions in the Environmental
      Management Plan .......................................... 366
        A. Site Selection ...................................... 366
        B. Directional Drilling ................................ 376
        C. Using "Impermeable" Pits for Drilling Muds .......... 381
        D. Reinjection of Formation Water ...................... 382
        E. Burial of Pipelines ................................. 389
        F. Limiting the Width of Roads ......................... 391
X.     Conclusion and Recommendations ........................... 392
International Standards In Ecuadors Amazon Oil Fields:
The Privatization Of Environmental Law
Judith Kimerling
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*290 I. Introduction
In December 1999, tens of thousands of protestors disrupted the Third Ministerial Meeting of the World Trade Organization ("WTO") in Seattle. Although the demonstrators represented diverse interests, they shared a common concern about the growing power of transnational corporations ("TNCs") and the consequences of corporate practices and globalization for the environment, labor, and human rights. The protests captured the interest of the mainstream media, and catapulted the debate about free trade into the public consciousness. A central element of the trade debate is disagreement about the relationship between free trade and globalization, on the one hand, and environmental and social standards and impacts, on the other.

Both critics and proponents of globalization agree that there has been a significant expansion, over the last decade, of international mechanisms to define and enforce economic rules that promote and protect global markets, and secure and advance the rights and economic interests of TNCs. But efforts by governments to articulate and enforce global norms to protect the environment, labor and human rights have lagged. A considerable gap remains between the noble promises in official speeches and documents, and the willingness or ability of governments to implement them. This imbalance in international governance is illustrated by the fact that under the rules governing trade today, there is a meaningful legal mechanism to hold a company accountable for pirating a Madonna video, but not for contaminating the environment or using forced or child labor.

Critics of globalization see free trade as an environmentally and socially destructive force that harms more people than it benefits, and say it is naive to believe that corporations will voluntarily use their power for humanitarian purposes when it could affect "the bottom line." Proponents of free trade and globalization argue that trade and investment in developing countries bring not only economic development but also higher standards of environmental protection and human and labor rights. Especially since the Seattle protests, they increasingly recognize the need to pay greater attention to environmental and social concerns in order to, *291 in the words of United Nations Secretary General Kofi Annan, "give a human face to the global markets." Nonetheless, they maintain that globalization is the best way to address environmental and social needs and concerns in the developing world, arguing that trade and investment offer opportunities to export international standards, promote the rule of law and good governance, and close the gap between the rich and poor.

Although a few officials, including former U.S. President Bill Clinton, have called for public rule-making at the global level to address at least some of the concerns raised by critics of globalization, most of the public discourse has emphasized private, voluntary initiatives by TNCs, rooted in corporate responsibility. TNCs, they argue, increasingly recognize that good corporate citizenship not only is an ethical responsibility that comes with the growing reach of corporate power and rights, but also is good for business. In the environmental arena, this is consistent with emerging principles of the international law of sustainable development, which embrace international trade and direct national governments to fill the environmental law vacuum by developing effective national regulation to implement international commitments and protect the environment. The popular view, then, is that corporate responsibility will complement nascent government regulation as developing nations gain environmental experience and capacity, and strengthen national democratic institutions and the rule of law, including environmental law.

These assumptions, however, are seldom checked against close observation of corporate behavior in the developing world. This Article seeks to help inform the trade debate by examining one initiative to implement international environmental standards in the Amazon Rainforest in Ecuador, by a U.S.-based oil company, Occidental Petroleum ("Occidental"). In this case, Occidental has used "international standards" to wrap its activities in a veneer of environmental excellence; reassure government officials *292 and local residents; cultivate confusion about standards and practices that apply to the operations; deflect meaningful oversight and transparency; and arbitrarily legitimize norms that have been defined by special interests. At the same time, the company has quietly negotiated an environmental law regime in its contract with Ecuador that seems designed to perpetuate and even legalize environmental self-regulation. These findings contradict the popular view that governments like Ecuador are on a "learning curve," and that foreign investment by TNCs strengthens the capacity of national officials to implement environmental law. They suggest that, in order for international standards and corporate responsibility to promote the rule of law in environmental affairs, and reliably raise standards for environmental protection, the international community needs to move beyond statements of principle, and develop transparent and participatory mechanisms to independently monitor and evaluate claims of environmental excellence by TNCs. In addition, the practice of negotiating environmental rules in contracts with TNCs raises serious questions of law and legitimacy, and should be publicly disclosed and debated before adherence to those contractual provisions becomes a litmus test for democratic development and the rule of law in Ecuador.

The Article begins with a general discussion of international standards, sustainable development and corporate responsibility, followed by an overview of Occidental's corporate policy and operations. It continues with a brief discussion of environmental law in Ecuador, and an introduction to the company's contract with the State. It then examines provisions in the contract that relate to international standards, and the implementation *293 by Occidental of the ISO 14001 standard for environmental management, which is commonly cited by corporate and government officials as the most important international standard for the operations. The Article continues with a discussion of additional provisions in the contract that define rules for environmental protection, including a provision that adopts Occidental's corporate environmental management plan ("EMP") as a legal standard. A detailed review of the EMP follows. The Article concludes that the EMP and contract operate together to cede environmental rule-making authority to Occidental, without public disclosure or meaningful review and approval by the government, and that this amounts to the privatization of environmental law. To shed light on the consequences of this legal framework, and levels of environmental protection, the Article then examines Occidental's operations in the oil fields, while acknowledging that the public record is murky in some important respects. It concludes with some general observations and recommendations.

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