[LUM#21] The Price of the Forest
Encouraging small landowners not to cut down trees by offering them financial compensation is known as payments for environmental services. But is this approach truly effective in reducing deforestation in the Amazon? To find out, economist Gabriela Demarchi conducted a groundbreaking assessment.
543,940 square kilometers is the land area of mainland France. It is also roughly the same as the area of forest destroyed in the Amazon over the course of 10 years. “Brazil is the country that loses the most tropical forest each year, ” says Gabriela Demarchi, an economics researcher at the Moisa laboratory1. At this rate, the World Wildlife Fund ( WWF) estimates that 55% of the Amazon rainforest could disappear by 2030.
An ecological disaster with far-reaching consequences. “These very dense forests are home to ancient trees that store large amounts of carbon. Deforestation and land-use change are the second-largest source of greenhouse gas emissions, right behind the use of fossil fuels, ” the researcher explains.
Limiting global warming
Reducing deforestation in the Amazon is a critical issue and a key lever for limiting global warming. Among the tools proposed to achieve this is the REDD+ initiative, which stands for Reducing Emissions from Deforestation and Forest Degradation. “This initiative proposes that developed countries, which emit the most greenhouse gases, provide compensation to developing countries to help them maintain their forest cover,” explains Gabriela Demarchi , noting that in recent decades, there has been a proliferation of such projects in the Brazilian Amazon.
In her dissertation at the Center for Environmental Economics in Montpellier, the economist examined one of these programs implemented between 2013 and 2017. The goal was to assess its effectiveness in reducing deforestation. This program, known as PAS, is based on what are called payments for environmental services. “This pilot initiative relies on financial compensation to encourage farmers not to cut down trees on their land, ” explains the Brazilian researcher.
Statistical twins
In practice, 350 smallholder farmers received a payment in exchange for committing to maintain forest cover on their land. “Farmers cut down trees to convert the forest into farmland or to raise livestock, so we pay them to compensate for their lost income and provide them with an alternative livelihood, ” explains Gabriela Demarchi.
But how can we assess the effectiveness of such a program? “In a scenario like this, it’s difficult to know whether or not the farmer would have cleared his land even if he hadn’t received monetary compensation, so these programs are hard to evaluate.” So the economist turned to what is known as an impact evaluation based on reconstructing the counterfactual scenario. “We identified rural households with characteristics as close as possible to those enrolled in the program; these are called statistical twins.” If the behavior of the statistical twin differs from that of the twin participating in the study, then we can infer that the program did indeed have an impact. And the researchers were able to quantify this impact: “The program reduced deforestation on these farms by 15 to 43% between 2013 and 2017, ” explains Gabriela Demarchi. But what happens when the program ends and the landowners stop receiving subsidies? “The risk is that they’ll cut down more trees to make up for lost time from previous years; in economics, this is called a rebound effect.”
Rebound effect
The researchers observed that while farmers did resume their usual practices after the compensatory payments were discontinued, they did not make up for their “deforestation deficit .” “This means that the environmental benefits generated by the program were sustained, so the forest was indeed preserved,” notes Gabriela Demarchi.
A positive impact on the Amazon and beneficial effects on global warming, since every tree saved means fewer greenhouse gases. “If we convert the environmental benefit into a monetary gain based on the social cost of carbon, then we can estimate that the program’s benefits exceeded those costs and that it can be considered cost-effective, ” explains the economist.
Cost-effective but still room for improvement. Would the program have been even more effective if the contract offered to farmers had been more flexible? “The deal was that if even a single tree was cut down, they’d be kicked out of the program. We could imagine a contract where cutting a few trees would result in penalties without ending the subsidies, which would allow more participants to stay in the program, ” explains Gabriela Demarchi. As part of this study, the researchers conducted a randomized controlled trial. The first of its kind to be conducted in the Amazon to test the effectiveness of introducing flexibility into this type of program. The results suggest that such a measure would help preserve more forest, but the associated costs could ultimately make the operation unprofitable.
This research may encourage policymakers to invest in such programs, “but it also allows for a more effective allocation of funds so that the program is even more efficient, ” notes the researcher, who now aims to study this issue on a larger scale and over a longer period of time. “There is also a risk of what is known as a spillover effect: when you stop cutting back in one area, you cut back more in another, so we need to analyze the impact of these programs on a large scale.”
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- Moisa (CIRAD, INRAE, IRD, Institut Agro, CIHEAM)
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