The document discusses the Chevron Texaco case in Ecuador, in which an Ecuadorian court found Chevron liable for $9.5 billion in damages resulting from oil extraction activities from 1965-1990. It contaminate land and waterways and negatively impacted human health. The court's decision was based on evidence from local residents and studies of increased health issues near oil infrastructure. The ruling aims to help fund cleanup efforts and address health and cultural damages to indigenous groups. The document also discusses other cases of companies being held liable for environmental damages, and debates around accounting for such costs.

1. ENVIRONMENTAL LIABILITIES OF
TRANSNATIONAL COMPANIES:
The Chevron Texaco case in Ecuador
and Climate Justice
J. Martinez-Alier
ICTA Universitat Autònoma de Barcelona
4 July 2012

2. 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.

3. 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.

4. 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?...

5. 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).

6. 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.

7. 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.

8. Texaco – in the northern Amazonia of Ecuador
La selva es nuestro hospital …
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.
la selva es nuestro mercado …
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
la selva es nuestra universidad …
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.
Fotos: KS, LS a Oil in Ecuador. A human energy story (H.Quante), www.texacotoxico.org

9. 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.

10. 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.

11. 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.

12. 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.

13. 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”.

14. 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.

15. “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.

16. 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

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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?

24. 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)

25. 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.

26. 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.

27. 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.

28. 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.

29. 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)?

30. 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.

31. 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.

32. 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?