Oxford University Press's
Academic Insights for the Thinking World

It’s cheaper to preserve the Amazon than we might think

“The cattle need ladders to graze here.” That is what my wife’s relatives used to tell her after they moved to the Amazon rainforest. She visited their farm when she was 13, and the planted grass was taller than she was. Grass grows tall there because of the substantial amount of nutrients left on the ground immediately after deforesting. A few years after clearing the land, though, most nutrients were gone and the grass became thin. That is hardly surprising as the Amazon soil is known to be among the poorest on the planet. By that point, as the locals say, the cattle would need to bend their knees to graze.

Despite the poor soil, the accumulated deforested area in the Brazilian Amazon since 1988 comprises an area larger than California. About two-thirds of that area is used for extensive pasture (the most common land use there). Extensive farming is to be expected in places where land is abundant and of poor quality.

The high deforestation rates have been a source of international concern for at least the past 30 years – and especially in the last two years. There has been many discussions among academics, policy makers, and in society in general, about different ways to curb the deforestation process. Examples of such policies include pre-established limits to deforestation in public and private lands, and the so-called “incentive-based” policies, which – as the name suggests – provide incentives for farmers to not deforest, such as taxing agricultural land or subsidizing forested areas. While all these policies can be effective in preserving forests if properly implemented, monitored, and enforced, their economic costs are not the same. Reducing the costs of policies is an important goal by itself, as it eliminates wasteful expenditures, and it can help avoid political strife. The greater the costs, the less likely are farmers to abide by the rules.

Key to reducing economic costs of environmental policies is to note that, although the soils are generally poor in the Amazon, they are not equally poor. Nor are farmers’ resources or entrepreneurial abilities. Differences in farms’ profitability means that some farmers need to forgo substantial profits to preserve the land, while others lose much less. A cost-effective policy minimizes farmers’ losses by avoiding unnecessary sacrifices. In order to preserve a certain amount of forested area, a cost-effective policy induces farmers who lose less from preservation to preserve larger areas, while inducing farmers who lose more from preservation to sacrifice smaller agricultural areas.

Some environmental policies are considerably more expensive than others. Currently, the Brazilian Forest Code requires that each farm in the Amazon must keep 80% of its area in natural vegetation. There is ample evidence that this rule has not been fully enforced: Forest coverage on private properties there has been approximately 40%. Farmers would lose about US$ 4 billion per year in forgone profits if the legislation were perfectly enforced. Not surprisingly, farmers have tried, systematically, to alter the Forest Code since it was implemented; the senator Flavio Bolsonaro (one of the president’s sons) had even proposed recently to eliminate the 80% rule completely.

In contrast, taxing agricultural land in a way that preserves 80% of forest cover in total would be approximately eight times less costly to farmers (about US$ 480 million per year of forgone profits). This corresponds to a cost saving from the land-use tax of approximately 90% of the cost of a perfectly enforced 80% rule. To have a sense of magnitudes, this is substantially higher than the cost saving estimates from allowance trading in pollution markets, ranging from 20 to 47% of the cost of standard quantitative limits to pollution emissions. Taxing agricultural land puts in place a price for everyone that considers that activity. In this way, the less productive farmers would find it profitable to use less land for agriculture, while the more productive farmers would still use more land and forgo fewer profits. (As a by-product, noting that the most productive farms are located in the south Amazon, toward the edge of the rainforest, forests in the central regions would be more preserved and less fragmented, which is advantageous from a biodiversity point of view.) The 80% rule disregards differences in profitability and so penalizes the more productive farms disproportionally, raising the total costs of the policy (and allowing for more forest fragmentation).

Instead of taxing agriculture, we could subsidize farmers to keep their forested areas. The total economic costs of payments would be similar to taxing, as it similarly puts a price on land use, but with the difference that farmers would not bear the burden of preservation – those who pay to preserve (and presumably benefit from) the forests would bear the conservation costs, which may sound fair. It could be politically difficult to do so in practice, either by taxing Brazilian families and business or by obtaining resources from foreign sources. Still, the benefits could be enormous. If we paid farmers to preserve the land based on the amount of carbon on the ground, a payment as small as US$10 per ton of CO2 per year could virtually eliminate all agricultural land in the Amazon. That is because of the overall low agricultural returns and the large stock of carbon on the ground there.

Evidently, no policy can be successful without efficient monitoring and enforcement systems, which in turn depend on political will – a by-no-means small issue, as we have been experiencing during the presidency of Jair Bolsonaro. Yet Brazil has a well-established, almost real-time, satellite-based monitoring system that have proved to work in deterring deforestation. Also, the country has been in the process of geo-referencing all rural properties, including the location of the required preservation areas within farms. Further, the Forest Code permits farmers who use more agricultural land than allowed by the 80% rule to buy quotas from farms that use less land than required – this effectively allows for a trading quotas market to emerge, which, like taxing or payments, is another “incentive-based” tool that puts a price on land use, and so can be a cost-effective policy.

In sum, despite the current increases in deforestation rates, all these recent advances point to a state with an increased capacity to implement preservation policies with small (or at least as small as possible) economic costs. Hopefully, cattle won’t need to be climbing ladders nor bending their knees, and perhaps not even travelling to the Amazon, to graze in the future.

Featured image credit: Rio Teles Pires by Frederico Oliveira. Photo owned by the author. 

Recent Comments

There are currently no comments.

Leave a Comment

Your email address will not be published. Required fields are marked *