Market News

 June 21, 2013
China's friendship with Costa Rica may conflict with its green goals

 Sailing through turquoise waters in the Gulf of Nicoya, where tourists snorkel in marine biological reserves and brown pelicans have their own protected nesting sites, it's easy to see why this tiny Central American country is routinely voted the "greenest" in the world.

A pioneer in eco-tourism, Costa Rica has built its brand around forest conservation, clean energy and a groundbreaking promise to become by 2021 the world's first carbon-neutral country.

But now it has arrived at an environmental crossroads. Earlier this month the government approved a $900 million line of credit from China to build a $1.3 billion oil refinery, citing the country's growing transportation needs. The decision has sparked outrage among environmental and some business leaders, who say it will blow a hole through Costa Rica's zero-carbon goals and undermine its ability to seek foreign aid for clean energy as well as its very reputation as an eco-friendly destination.

"If the people want to see oil refineries, they go to Texas, not Costa Rica," said Carlos Mora, who drives a taxi in the congested capital of San Jose. Mora navigated potholes and careening motorbikes as he gestured to the mountains ringing the city. "Volcanoes, rainforests, beaches. This is what the tourists come here for."

Political analysts say the bounty China bestowed on Costa Rica in the wake of President Xi Jinping's visit in early June is part of the Asian economic giant's rising influence in the region. A study last year out of Boston University found China lent Latin America $37 billion in 2011 -- more than the World Bank, U.S. Export-Import Bank and Inter-American Development Bank combined -- with the vast majority going toward energy and infrastructure

A soccer stadium as a door opener

For Costa Rica, the relationship blossomed after it broke diplomatic relations with Taiwan in 2007. Since then, it has seen a gusher of money from China: the purchasing of bonds, scholarship money to send Costa Ricans to study in China and, most prominently, a gleaming 35,000-seat new soccer stadium in San Jose. A gift from China, the stadium was built entirely with Chinese labor and materials, according to the Costa Rican media, and many residents say they now distrust China's largesse.

"We are making a deal with the devil," said Alfonso Arce Madrigal, a tour guide who spends his days bringing foreigners to beautiful remote island beaches off Costa Rica's Pacific coast, charming them with jokes about high tides, low tides and mai tais.

"The environment here is very nice, very nice. We have a green country. This refinery won't work," he said. But environment aside, Madrigal said he doesn't believe the oil refinery will bring benefits for the average Costa Rican.

"I think it will be very much like the soccer stadium," Madrigal said. "It's just business for them. We're not going to get anything from this."

Costa Rica's leaders are deeply proud of the country's commitment to ecology. At a recent United Nations Industrial Development Organization High-Level Conference of Middle Income Countries hosted by the Costa Rican government in San Jose, minister after minister took the stage to tout the country's early decision to conduct "natural resource accounting."

This factors in the health, environmental, tourism and other benefits of preserving nature, compared with what could be gained by extraction. The ministers noted that more than a quarter of the country's land area is in protected national parks and other protected areas.

"Thanks to the sustainable development policies we have promoted, we are the fifth-greenest country and are working to become the first carbon-neutral country in the world," President Laura Chinchilla declared. She decried "developed economies that are using highly contaminating energy sources such as coal" and accused them of not operating "responsibly" for the planet.

A new oil refinery looms on the horizon

But in interviews with several top leaders in Chinchilla's administration, government support for the refinery was widespread, and officials insisted there is no incongruity between the nation's environmental goals and its petroleum deal with China.

"I think a refinery can be built up and operated in Costa Rica taking measures of precaution against any environmental damage," said Minister of Foreign Affairs Enrique Castillo Barrantes. He called the country's current 1950s-era refinery "obsolete" and too expensive to refurbish, adding the country needs a new one to avoid maintaining dependence on international markets.

"We don't think even if we make important progress in migration to clean energy we will be able to discard 100 percent the use of oil, at least in the middle term, so we have to foresee a way to have access to refining oil," Barrantes said.

He noted that the refinery is not yet a done deal. So far, China has agreed to make the $900 million available to a Costa Rican bank in trust while negotiations continue. But, Barrantes said, he is optimistic that Costa Rica will get the refinery.

Mayi Antillón, minister of economy, industry and trade, would not say whether she supported the deal but insisted the Costa Rican government is still "exploring all of the possibilities," including geothermal, wind and natural gas.

Meanwhile, the very business leaders that Antillón and others hailed as the "moral" entrepreneurs leading Costa Rica to a cleaner future say they, too, harbor deep reservations about the new refinery. In addition to the loan from China, Costa Rica would put an estimated $400 million toward the project, the profits from which would be shared with the Chinese government.

Political dispute claims a casualty

"We are speaking to the people in charge of taking this decision to please think again," said Ernesto Moreno, president and CEO of Total PET, a Costa Rican packaging company that spearheaded a low-emissions method of creating plastic bottles.

"I think this is not an investment in the right direction," Moreno said. "There's always this argument about transportation, but I think for the amount of money that's on the table, we can use it to build a refinery or we can use it to improve what is causing us to need the refinery. I would use it to upgrade our transportation system."

The fierce debate erupting across the country has already has claimed one victim: Monica Araya, a climate change adviser to the government who was dismissed after speaking out against the project.

Environment and Energy Minister Rene Castro has in various public forums denied firing Araya, saying alternately that she continues to work with his administration and, inaccurately, that she is a consultant for the World Bank and German government. But an email obtained by ClimateWire sent by a ministry official to a member of Australia's climate change delegation states Araya has been "relieved of her current duties."

In an interview, Araya insisted the focus should be not on her but rather on what she calls a decisive moment for her country. If Costa Rica truly wants to make good on its promise to become carbon-neutral, she said, now is the time to tackle the thorny transportation sector: focus on fuel switching, public transportation and new automotive technologies.

While the refinery on its own wouldn't significantly change Costa Rica's emissions levels, she argued it locks the country into a high-carbon pathway and eliminates incentives to switch fuels, develop new transpiration systems and end oil dependency.

"All the good efforts that Costa Rica has set in motion in the past decades will be seen as coming to an end," Araya said.

Gasoline vs. public transportation

"We face a paradox as a country. We are asking donors in the E.U. and the U.S. to support our low-carbon development strategy with grants. ... On the other hand, we are willing to take a very big loan for high-carbon infrastructure," she said. "Why can't we say to China exactly what we say to our donors, which is that we are committed to a low-carbon economy?"

Carlos Manuel Rodriguez, Costa Rica's former environment minister and now vice president for conservation policy at the nonprofit Conservation International, said his country has been in this place before. But when he was in government, Rodriguez said, the oil pressure came from the United States. Costa Rica's answer to America at that time was unambiguous.

"We said we were not going to promote oil drilling," Rodriguez said. "Our argument was, this is a government that is not going to promote oil and gas. Back then, we had a list of environmental priorities, and we worked through them coherently during the four years. This government has set their environmental priorities but hasn't done anything at all.

"In terms of oil and gas, they've been very erratic, and they haven't been strong enough to say, 'We will continue the policy of no oil and gas.' They've been very timid," he said. "We shouldn't invest in this. We should use this money to invest in the transportation sector. This $1.3 billion could help us dramatically achieve our carbon neutrality."

While the China deal has been deeply nontransparent, opponents believe there is a movement brewing to stop the refinery.

Araya said she is working on a proposal that will explore what Costa Rica could do with $1.3 billion if it were to invest in low-carbon alternatives.

"My ultimate goal is to help the debate in Costa Rica move away from how to do a refinery to why we need a refinery," she said. "If we can show South-South cooperation can be low-carbon cooperation, then we will have a triple win -- we can show it's good for Costa Rica, good for China and good for the environment."