Useful pages on the regulator website
- Official site of the Ecuadorian Ministry of the Environment, Water and Ecological Transition: https://www.ambiente.gob.ec/
- Online platform of the Ecuadorian Ministry of the Environment, Water and Ecological Transition: http://suia.ambiente.gob.ec/
- Ministry of the Environment, Water and Ecological Transition: Gustavo Rafael Manrique Miranda
- Vice Minister of the Environment: Bianca Isabel Dager Jervis
- Vice Minister of Water: Oscar Leonardo Rojas Bustamante
- Undersecretary of Environmental Quality: José Antonio Dávalos Hernández
- Undersecretary of Natural Patrimony: Glenda Givabel Ortega Sánchez
- Undersecretary of Climate Change: Karina Maribel Barrera Moncayo
- Undersecretary of Water Resources: Evelyn Adriana Mina Cevallos
- Undersecretary of Potable Water, Sewerage, Irrigation and Drainage: Rafael Alberto Osorio Sánchez
On 5 June 2021, the government published through Executive Decree No. 59 the new name of the national environmental authority, as the Ministry of Environment, Water and Ecological Transition, becoming the first country in Latin America to prioritise the transition to sustainable development and a policy of net zero emissions by 2050.
This entity seeks to guarantee the quality, conservation and sustainability of the country’s resources for current and future generations, using different mechanisms and including the participation of public and private organisations.
The legislation framework includes the following, among others:
- The Ecuadorian Constitution;
- Environmental Organic Code;
- Organic Law on Water Resources, Uses and Development of Water;
- Organic Law of Inclusive Circular Economy;
- Law for the Rationalization, Reuse and Reduction of Single-Use Plastics;
- Regulations to the Environmental Organic Code;
- Environmental Regulation of Hydrocarbon Operations;
- Environmental Regulation of Mining Activities;
- Regulation to the Law of Rationalization, Reuse and Reduction of Single Use Plastics; and
- Unified Text of Secondary Environmental Legislation (TULSMA).
The environmental authority also supervises and participates in the regulation of different areas, including agriculture, animal production, aquaculture, forestry; hydrocarbon activities focused on exploration, development and production, industrialisation, commercialisation, manufacturing of petroleum products and coal; energy generation activities focused mainly on the development of generation projects through renewable and non-renewable natural resources of energy; mining activities related to artisanal, small, medium and large-scale, free use mining of minerals; environmental services activities such as wholesale and retail trade, repairs and maintenance, transportation and storage, aerial spraying, accommodation, professional, scientific and technical services; hazardous and special waste management activities; and chemical and hazardous substances.
Reporting and disclosure obligations
The Ministry of the Environment, Water and Ecological Transition, as the supervisory and control authority, is in charge of granting the necessary administrative permits for activities that may pose an environmental risk and must be duly regulated, depending on the environmental impact they cause. There are three types of administrative environmental permissions, which are the environmental licence (high and medium impact), the environmental registration (low impact) and the environmental certificate (non-significant impact).
Other types of administrative documents that are mandatory are environmental management plans, social participation processes, environmental compliance audits, registration of hazardous waste generators and their corresponding declarations, such as extended producer responsibility, water use and exploitation permits, among others.
Monetary sanctions and recent behaviour
From the administrative point of view, an environmental sanctioning system has been implemented, which is governed by the Organic Environmental Code and consists of three steps. The first step is the analysis of the economic capacity of the offender, which is based on an analysis of the offender's annual gross income obtained in the previous fiscal year. Based on this information, the authority will classify the offender in one of the four groups provided for in the Organic Environmental Code: Group A (gross annual income ranging from US$0 to US$11,212) to Group D (gross annual income from US$112,120), the latter having the highest gross annual income and therefore subject to higher fines (articles 322 and 323, Organic Environmental Code).
The second is the analysis of the infraction, which may be classified as minor, serious or very serious (articles 316 to 318, Organic Environmental Code). Finally, the competent environmental authority may determine whether the offender’s actions are considered aggravating or mitigating, the formers are sanctioned with an additional 50% of the total fine (article 330 of the Organic Environmental Code), while the latter give rise to a reduction of the sanction by a similar amount (article 329 of the Organic Environmental Code).
In summary, the Organic Environmental Code establishes administrative sanctions ranging from US$400 to US$80,000, depending on the severity of the infraction. The most frequent activities for which companies are sanctioned are related to non-compliance with permissible parameters for spills, discharges and emissions; this infraction is classified as very serious and, therefore, is subject to the highest fine (US$80,000, which applies if the company’s annual gross income is in the Group D category). The environmental regulations also establish that, if a violation has affected communities and individuals, "integral remediation" must be carried out, which may include compensation for damages suffered, to be determined by the competent authorities.
Regarding criminal liability, the Integral Penal Organic Code (article 258) states that companies may be subject to fines. These fines and their amounts will depend on the crime committed. The main types of offenses found as environmental criminal liability are those involving serious damage to water, soil, and air. The higher the number of years of imprisonment, the higher the fine. For example, for offences for which the penalty is between one and three years of imprisonment, the fine can range from US$40,000 to US$120,000. If the sentence exceeds five years, the fine can range from US$200,000 to US$400,000.
The amounts of these fines are linked to the basic unified salary and the basic taxable fraction of income tax in Ecuador, which are updated annually. Therefore, each year, the fines will increase by the same amount as the minimum wage; however, for 2021 the unified basic salary has been maintained at US$400.
Likewise, the Organic Law of Water Resources, Uses and Development of Water includes sanctions that will be established by the Competent Authority, where, as in the Organic Environmental Code, minor, serious and very serious fines (from US$400 to US$60,000) are included according to the infractions committed by the operator.
However, with the implementation of the Organic Law of Inclusive Circular Economy, new penalties were incorporated aimed at producers, suppliers and managers, and collection, handling, reporting and operational activities, which, depending on the infraction, can range up to 10% of the damage caused, which must be determined in an audit.
Non-monetary sanctioning powers and behaviour
Article 320 of the Environmental Organic Code contains all the administrative sanctions that apply to infractions, which consist of:
- monetary fines (as detailed in the previous section);
- seizure of wildlife (native, exotic or invasive species), tools, equipment, means of transportation and other instruments used to commit the offence;
- destruction of the means of transportation, tools or goods use to commit the offence;
- temporary suspension of the activity or the activity’s official endorsement.
- revocation, suspension or loss of incentives; and
- eviction of people from the area where the offence is being committed, with full guarantee of their rights, as well as the dismantling and demolition of infrastructure or instruments used to commit the offence.
When the violation affects nature, in addition to these sanctions, the Ecuadorian Constitution will guarantee the integral reparation of the ecosystems that have been affected. In the Environmental Organic Code and its Regulations, priority is given to regeneration to the natural state when this is possible from a technical, economic, and social point of view. Therefore, restoration implies the execution of all the activities or acts required for the recovery and re-establishment of the natural processes. When the corrective measures approved by the competent environmental authority are not complied with, the definitive closure of the activity can be imposed.
Likewise, the regulations establish that when required by the magnitude of the damage, and even after applying all the necessary and required measures, it has not been possible to restore the state and conditions prior to the infraction, compensatory measures must be taken. These compensations will generate environmental benefits proportional to the losses caused by the environmental damage. Social environmental compensations may also be undertaken, such that actions, programs or plans must be executed by those responsible for the environmental damage, in coordination with the respective regulating bodies that favour individuals who have been environmentally affected. These measures may be temporary or permanent and must be carried out until the original conditions are restored, with the consent of the affected individuals, who may sign negotiation agreements.
Article 161 of the Organic Law on Water Resources, Uses and Development of Water establishes remediation as part of the sanctioning resolution, once an infraction has been committed by the operator, where the Competent Authority will impose a total value assumed with a surcharge of up to 20% without prejudice to the actions for damages that may be applicable.
The Law of Inclusive Circular Economy establishes that the minor infraction is configured when the producer or supplier does not report or reports deficiently the collection or recovery goals and their compliance in the Integrated National Registry of Pollutant Emissions and Transfers, that if determined, a term of no more than 120 days will be granted to comply with the update of the required information, and that in case of not proceeding as requested, the supplier or producer will be expelled from the Circularity Qualification system to access the incentives.
Recent and upcoming developments
The Regulations of the Organic Environmental Code were enacted in Official Registry No. 507 of 12 June 2019. These Regulations address and expands on environmental issues such as extended producer responsibility (EPR), the inclusion of clean technologies in production processes, and the circular economy.
Regarding EPR in Ecuador, counsel should take into consideration that the following products are currently being regulated: used batteries, unused electronic items, used oils, tires, agrochemicals and unused cell phones. It is expected that other products will be included in the future.
On 19 June 2019, Ministerial Agreement 048 was issued by the Ministry of Environment, Water and Ecological Transition, which regulates new incentives (an additional 100% deduction of depreciation rates) to companies that implement environmentally friendly machinery, equipment, and technologies.
On 1 April 2020, the Environmental Regulation of Hydrocarbon Operations was promulgated, which regulates natural and legal persons, without exception, who carry out hydrocarbon activities and who intervene in the phases within this process, as well as the environmental administrative organisations they must comply with. A key aspect to highlight is the definition of operator, contemplated in article 4 of the Regulation, which includes those corporations that maintain a determining economic power over the technical operation of the activity, thus substantially broadening the spectrum of responsibility in environmental matters. Another key aspect is found in article 14, the purpose of which is to determine imperatively that equipment, materials, and technologies compatible with environmental protection must be used in all phases of industrial production.
In relation to environmental taxes, in accordance with the provisions of the Organic Law of Tax Simplification and Progressivity, as well as its regulations, on 6 May 2020, the Internal Revenue Service of Ecuador issued rules that are responsible for imposing and regulating the tax on plastic bags, which seeks to reduce their use.
In terms of waste reduction, the Law of Rationalization, Reuse and Reduction of Single-Use Plastics was implemented, published in the Official Registry 354 dated 21 December 2020, which seeks the progressive reduction of single-use plastics, in a period of up to 36 months.
As well as the Inclusive Circular Economy Law, published in Official Registry 488 dated 6 July 2021, which seeks to follow a sustainable development model, being this one of the goals of the new Ministry of Environment, Water and Ecological Transition, changing the linear economy to a circular one.
Through Executive Decree No. 59 dated 5 June 2021, the government adopted the challenge of executing an ecological transition in which it committed and declared sustainable development as a national priority, as well as the goal of zero net emissions by 2050.
Through Executive Decree No. 95 dated 7 July 2021 and Executive Decree No. 151 dated 15 August 2021, the government adopted a 100-day action for the hydrocarbons and mining sectors, respectively. These plans aim to make the country's hydrocarbons and mining sectors efficient, sustainable, and environmentally responsible. To this effect, the Ministry of Environment, Water and Ecological Transition, together with the Ministry of Energy and Non-Renewable Natural Resources, was ordered to review all existing environmental processes for said sectors, so that they are addressed and considered as a priority.
The main challenges for the Ministry of Environment, Water and Ecological Transition lie in the granting of environmental permits. Given that most economic activities require environmental permits, there is an overload of administrative procedures that sometimes makes it difficult for the authority to handle, which in turn causes a delay in the issuance of licences, registrations and environmental certificates. This situation leaves companies wishing to operate without permits, subjecting them to unnecessary delays or risks caused by the complications of the authority to operate effectively.
Another challenge is the regularisation of certain sectors, such as mining. Mining has played an important role in Ecuador's economy for several decades. The Ministry of Environment, Water and Ecological Transition will face the challenges of overseeing and enforcing regulations in an agile and effective manner, while curbing illegal mining operations (which seriously undermine the legitimacy of the mining sector). The role of the authority will be key in the future development of this industry in Ecuador, especially considering the current state of opposition to this activity by some local communities and environmental groups. Hopefully, with the recently enacted 100-day action plan for the mining sector, this challenge could be addressed properly in order to put Ecuador in good position to legally and sustainably develop this important sector.
However, the progressive reduction of plastics will be a challenge for companies and for the Competent Authority, because a progressive reduction of single-use plastics is required by the Law of Rationalization, Reuse and Reduction of Single-Use Plastics, as well as the Organic Law of Inclusive Circular Economy.
Interacting with the regulator
The Ministry of Environment, Water and Ecological Transition offers several means of communication. Contact can be made by telephone (+593 2 398 7600). However, almost all procedures and inquiries are handled by email ([email protected]). Response times vary, but most queries are dealt with within the same week.
For more urgent matters, it is advisable to go directly to the officer in charge, by appointment.
Notes for foreign investors
The Constitution of Ecuador contemplates several legal principles in environmental matters that must be considered by a foreign investor:
- Nature as a subject of law (article 71), which allows any individual or community to claim any affectation or damage to nature or ecosystems.
- Prevention and precaution, forcing any person carrying out an activity to adopt all necessary care and measures so as not to affect the environment.
- Objective liability, which implies that the analysis of the causality of the fact is dispensed with and only the fact is considered relevant (applied only for administrative purposes).
- The inversion of the burden of proof, which determines the obligation to prove innocence in the case of involvement in the administrative sanctioning procedure of a relevant environmental matter (applied only for administrative purposes); and
- Environmental liability is imprescriptible, which means that the authority or an interested individual may denounce and initiate a proceeding regardless of the passage of time.
In view of the foregoing, if an investor wishes to carry out a merger and acquisition process, it is recommended to carry out an exhaustive due diligence to previously identify all environmental contingencies that may exist.
Likewise, the Organic Environmental Code establishes that environmental liability may be extended to companies with decision-making power (parent companies), to legal representatives (directors or officers) and to those in charge of environmental management functions who are directly responsible for the consequences of the activities and damages to the environment. Therefore, it is highly recommended to have a comprehensive compliance system in place to monitor compliance with applicable regulations and reduce the risks and costs of environmental violations or damages.
On the other hand, by Executive Decree No. 59 dated 5 June 2021, the highest environmental entity was named Ministry of Environment, Water and Ecological Transition, which prioritises sustainable development ensuring economic growth, environmental care, and social welfare. In turn, for those investors interested in the hydrocarbon sector, through Executive Decree No. 95 dated 7 July 2021, an immediate action plan is established for the next 100 days from its publication, where the main objective is the increase of this sector in a rational and environmentally sustainable manner.
Other regulators with whom the Ministry of Environment, Water and Ecological Transition work closely
- Ministry of Energy and Non-Renewable Natural Resources
- Ministry of Production, Foreign Trade, Investments and Fisheries
- Ministry of Agriculture and Farming