After a backlash from the announcement of DR Congo’s oil auction in the country’s most important biodiversity areas, the DR Congo government has announced it will open up the auction to crypto and carbon offset companies to buy up the auction zones and halt oil exploration.
- DR Congo’s hydrocarbons minister says he is open to carbon offset companies to bid in latest oil exploration licencing auction, if they have financial backing.
- The latest oil auction in DR Congo includes blocks in some of the world’s most important areas for biodiversity and carbon sequestration.
- Preserving these important biodiverse areas could yield more economic value compared to oil exploration, but competition in the auction will not be on an even playing field.
“With its peat bogs and its massive forests, [DR Congo] provides humanity with a significant carbon dioxide sequestration service and contributes to limiting the increase in global temperature”* said DR Congo’s president Felix Tshisekedi in his COP26 speech in Glasgow on the country’s contribution to helping the world reduce carbon emissions in line with the Paris Agreement.
“We are working on reducing the pressure on our forest by developing our immense clean and renewable energy potential”* promised Tshisekedi.
However, less than a year later, the hopeful COP26 promises seem to have been forgotten as DR Congo announced in July 2022 that it will be opening up some of its most richly biodiverse peatlands and forests to new oil exploration.
The oil exploration blocks added to the auction include areas in Virunga National Park and the Cuvette Central, the world’s largest tropical peatland and an important carbon sink not only for the country, but for the world.
Purchasing oil blocks to avoid damaging biodiversity
This announcement caused an uproar in environmentalist groups as exploration in these biodiversity hotspots would release significant amounts of carbon, which would seriously set back the world’s efforts to reduce emissions to avoid the worst impacts of climate change. That doesn’t even include the impact of adding new oil and gas reserves to potentially stranded assets under the global carbon budget.
Following the uproar, carbon offset and crypto companies have expressed interest to DR Congo’s government of purchasing the oil blocks up for auction to avoid the destruction of these important biodiversity and carbon removal areas.
The country’s hydrocarbon minister Didier Budimbu told the Financial Times that he would be prepared to accept bids from these companies as long as they had the financial backing.
“If it can help our economy and the country, why not?” said Budimbu. “We’re not doing this to destroy the rainforest, we’re doing it for economic gain.. With or without oil, what’s important is that we earn [money]”.
$1 trillion of untapped oil in DRC
The Ministry of Hydrocarbons claims that the country is currently only tapping into 4.5% of its oil and gas resources. Annually, the country exports 8 million barrels of crude oil annually, but the ministry claims that the county possesses over 22 billion barrels of crude oil and 66 billion barrels of methane gas that they could exploit to support the economic growth of the country.
Arguing for the choice to increase the number of oil exploration blocks, Budimbu said “we have the right to benefit from our natural wealth. We are a free, sovereign nation, so we will exploit it”.
The ministry claims that the untapped oil and gas resources could generate income of $1 trillion, which could help the country fund public services like schools, hospitals, and infrastructure.
However, it is unlikely that the country will be able to realise this economic gain in its entirety for three main reasons: the auction is unlikely to sell all the licences up for grabs, historically the government only benefits from a small fraction of crude oil sales, and the increasing risk of stranded assets.
Challenges to DRC raising $1 trillion from oil and gas sales
Firstly, oil and gas giants which had previously expressed interest in the DRC’s oil and gas tender, such as France’s TotalEnergies and Italy’s Eni, have already said they do not intend to participate in the licensing round in comments to the Financial Times.
History has perhaps influenced the decision of these oil and gas companies, as this is not the first time oil blocks in Virunga National Park have been up for auction. In 2014, UK-based oil multinational Soco International PLC began oil exploration in Virunga, but a massive global campaign led by the World Wildlife Fund (WWF) eventually forced the company to halt operations in the area.
Secondly, the sales of crude oil originating from the DRC benefit the companies extracting the oil more than the country itself. A report published by the Extractive Industries Transparency Initiative (EITI) reveals that out of the total $7.27 billion of crude oil sold from the DRC in 2019, only $624.5 million was actually returned to coffers of the national public treasury. This means that the DRC government is only receiving around 8.6% of the revenues of its crude oil sector.
Lastly, the increasing risk of stranded assets as the world shifts towards net zero is impacting the financial value of fossil fuels globally. A new report published by Carbon Tracker estimates that around 80% of declared fossil fuel reserves owned by listed companies are at risk of stranding if the world stays below 2C temperature rises.
The stranded asset risk is equivalent to over US$ trillion of oil and gas assets. This risk significantly influences investors’ decisions to develop new projects, as there is potential that these assets could be rendered worthless in a low carbon economy.
Although the extraction of oil and gas in the DRC may be revenue driven, this motivating factor is perhaps short-sighted as it does not take into account a shift in the business models of oil and gas companies who are looking to clean up their image as they are faced with increasing public pressure, as well as the limitations of how the government and its citizens can actually benefit from the sale of these fossil fuels.
Economic benefits of biodiversity outweigh oil and gas
Oil and gas exploration may create revenue in the short-term, but exploration in highly biodiverse areas such as those proposed in the new blocks by the DRC government will have significant negative economic impacts in the long-term.
One of the areas threatened by the newly auctioned oil blocks is the Virunga National Park, Africa’s most biodiverse park and home to one-quarter of the world’s population of the critically endangered mountain gorillas.
A report published by WWF estimates that the annual economic value of Virunga National Park is $48.9 million, and this could increase to $1.1 billion if its resources are developed sustainably and biodiversity is preserved to contribute to carbon sequestration, water supply, and erosion control to support other key industries and jobs in the region such as agriculture, fishing and hydropower.
The other critical area threatened is the Cuvette Central peatlands, which contains 30% of the world’s tropical peatland carbon and currently locks in 30 gigatonnes of carbon according to a study published in Nature – equivalent to 15 years of emissions in the United States.
DRC’s commitment to peatland protection in question
In 2016, the DRC was one of the founding members of the Global Peatlands Initiative, a multi-stakeholder organisation created to help protect peatlands across the world.
The DRC also committed to the protection of its precious peatlands resources under the Brazzaville Declaration, signed in 2018 to reaffirm the importance of the country’s peatlands for climate action as well as sustainable development.
Despite these commitments and recognition of the importance of the DRC’s peatlands, there are three oil blocks in the Cuvette Centrale now up for auction.
Destruction of the peatlands by oil exploration would release significant volumes of carbon into the atmosphere, not to mention the carbon emissions of oil exploration activities and the burning of the extracted fossil fuels.
This would turn the area from one of the world’s most important carbon sinks, into a net carbon emitter.
Protecting nature could manage trillions in risk
The risk of losing these important biodiverse and carbon-absorbing areas in the DRC could have immense long-term economic impacts.
There is a growing body of research that links nature to economic debt or loss, with over half the world’s GDP ($44 trillion) moderately or highly dependent on nature.
A World Bank report estimates that protecting nature could avert global economic losses of US$2.7 trillion annually by protecting sectors that rely on nature to generate goods and services.
Oil auction not an even playing field
The move to allow carbon offset companies to bid in the DRC’s upcoming oil auction presents an opportunity to save the country’s important biodiversity hotspots, however these companies are not competing on an even playing field.
These companies would bid for licensing rights, and instead of extracting oil and gas for revenue, they would sell carbon credits to companies who want to offset their emissions in line with net zero strategies.
However, there is not currently an official methodology to bring credits from avoided oil and gas exploration to market, and developing such methodologies takes time – not possible before the current round of auctions.
Moreover, the amount of capital needed to win an oil exploration block in the auction goes far beyond the capital available to many carbon offset companies, which are still nascent compared to the historically rich oil and gas companies. This imbalance is exacerbated by a failure to accurately price carbon and the negative economic impact of biodiversity loss.
History has shown us that in a battle between biodiversity protection and oil, oil will win. A similar showdown happened fifteen years ago in Ecuador, when then-president Rafael Correa vowed not to drill in the oil-rich Yasuni National Park if the international community could compensate for the country’s lost revenue – a sum calculated to be around US$3.6 billion.
While the initiative was originally praised as a novel strategy to incentivise biodiversity protection over oil revenues, only a small fraction of the demanded contribution was raised and oil drilling went ahead in 2016.
Could the voluntary carbon markets scale if necessary?
While the DRC dilemma offers more potential for success as the carbon offset market is growing globally as pressure to decarbonise is pushing companies to purchase credits, especially deforestation credits, the upfront costs of buying oil exploration rights is still beyond the coffers of most carbon offset companies.
With the time window for bidding closing in February 2023, there is time for these companies to raise extra capital through initiatives such as crowdfunding or partnering with more capital-intensive companies.
The results of this auction will be a key battleground for the long-term importance of biodiversity conservation versus the short-term economic gains of fossil fuels.
*Quotes translated from their original version in French by reporter
