Loan for Oil Refinery Clashes with Costa Rica’s Climate Policies

A recent visit to Costa Rica by Chinese President Xi Jinping has led to a mounting backlash against a proposed oil refinery, which undermines Costa Rica’s target of becoming carbon neutral by 2021.

The visit of the Chinese President to Costa Rica earlier this month led to a raft of agreements including a proposed US$1.5 billion investment to upgrade an oil refinery capable of processing 65,000 barrels of oil a day. Chinese loans will also fund the extension of a road to connect Costa Rica’s interior to a major port, replace around 16,000 public transportation vehicles and provide credit for the purchase of 50,000 solar panels. The refinery has led to a public outcry in Costa Rica and an online petition has already surpassed 15,000 signatures.

Since Costa Rica broke diplomatic ties with Taiwan in 2007 in favour of China, cooperation has flourished. In 2011 the China-Costa Rica Free Trade Agreement entered into force and China is now Costa Rica’s second-biggest trading partner after the United States. Costa Rica aims to become a member of the Pacific Alliance trade bloc alongside Chile, Colombia, Mexico and Peru, which has its sights set firmly on Asian markets.

Costa Rica’s decision to promote relations with China and attempt to join the Pacific Alliance is part of a broader trend throughout Latin America, which has seen countries expressing a more assertive and independent foreign policy. The Pacific Alliance reflects the desire of its members to be open and dynamic economies trading both within the region whilst opening up to world trade.

Although, Costa Rica’s emphasis on promoting trade and foreign cooperation may reflect a new pragmatism, the spectre of climate change provides a blustery reminder of the limits of conventional economic thinking. Like the rest of Central America, Costa Rica is very vulnerable to extreme climatic events, especially hurricanes and tropical depressions, which are costing the region billions of dollars in damages annually.

Costa Ricais a pioneer on green issues and the transition to a low carbon economy and in 2008 it pledged to become carbon neutral by 2021. Heralded as a Mecca for ecotourism enthusiasts, Costa Rica has achieved impressive reforestation results and obtains over 90% of its electricity from renewable energy.

Alongside Colombia, Peru, Chile, Panama and Guatemala, Costa Rica is part of the Independent Alliance of Latin America and the Caribbean (AILAC, in Spanish), a negotiating group of middle income counties at the UN climate change talks, which have put forward voluntary emissions reductions.

At the COP18 in 2012, Costa Rica’s Minister of Environment and Energy, Rene Castro, reaffirmed his country’s commitment to negotiate a new global agreement applicable to all countries by 2015. He said that “as part of the agreement every Party will make a contribution” and that “the agreement must encourage an upward spiraling of ambition, including by rewarding early and bold action.”

A new oil refinery, which critics suggest could also be a smokescreen for future oil and gas exploitation, contradicts this rhetoric and Costa Rica’s own climate goals. As the Climate Action Network asks how can an oil refinery fit in a carbon neutral scheme and how would Costa Rica balance these emissions as carbon capture and storage is still a pipedream.

Proponents of the refinery suggest it will create jobs, lower petrol prices and that the use of fossil fuels will continue for decades anyway. Minister Castro says that Costa Rica has the opportunity to develop its own capacity to import and refine oil instead of paying high prices to import it. However, Dr. Leiner Vargas at Costa Rica’s National University, argues that the new refinery could result in losses of up to US$300 million per year and would increase the price of petrol.

Politicians and diplomats praise Sino-Costa Rican relations and its importance for economic growth. Although the increasing presence of China in Latin America has a number of positive aspects, it is not without risks. China’s presence has so far been overwhelmingly focused on the extraction of natural resources and securing energy reserves to support its domestic growth. This focus has serious consequences for the environment and researchers suggest that China is developing an aggressive ‘energy diplomacy’ to guarantee access to energy resources.

Costa Rican politicians are in a sticky predicament given the importance of Chinese investment but also the risk that cooperation poses to their climate policies. Given China’s interest in natural resources and energy, Costa Rica’s ability to persuade China to emphasize low carbon cooperation is a tough sell.

But as Monica Araya, argues this is precisely the case Costa Rica should be making. Araya, a Costa Rican expert on climate change, suggests that Costa Rica has a golden opportunity to redirect Sino-Costa Rican relations towards low carbon growth. The Chinese loan to purchase 50,000 solar panels is a promising start but given China is the world’s biggest producer of wind turbines and photovoltaic modules, this is the tip of the iceberg.

Having openly criticised the oil refinery, Araya, who was a member of the Costa Rican climate change delegation, was dismissed by Minister Castro, revealing the sensitivity around Chinese cooperation and the political pressure behind the refinery.

Costa Ricashould lobby China to increase its bilateral cooperation on climate change, environmental protection and renewable energy as all three feature prominently in China’s 2008 Policy Paper on Latin American and the Caribbean. However, little has so far materialised.

President Xi Jinping talks of how relations between China and Costa Rica could become a model for cooperation between countries of different sizes and conditions. However, rising opposition to the nature of Chinese investment in Costa Rica suggests a rethink is in order.

Climate change impacts will continue to hit vulnerable regions especially Central America. As a beacon for low carbon growth, a new oil refinery is not in Costa Rica’s interests. Both countries have the opportunity to convert their relationship into a model of cooperation on low carbon development and repackage the refinery loan towards such endeavours.

 (news.co.cr, edited by Topco)