The price of the forest

Encouraging small landowners not to cut down trees by paying them financial compensation is known as payment for environmental services. But are they really effective in reducing deforestation in the Amazon? To find out, economist Gabriela Demarchi has carried out an unprecedented evaluation.

543,940 km² is the surface area of mainland France. It's also roughly the area of forest destroyed in the Amazon in the space of 10 years. " Brazil is the country that loses the most tropical forest every year," explains Gabriela Demarchi, an economics researcher at the Moisa laboratory.¹. At this rate, the WWF estimates that 55% of the Amazon rainforest could disappear by 2030.

An ecological catastrophe with far-reaching consequences. "These very dense forests are populated by very old trees that store a lot of carbon. Deforestation and changes in land use are the second biggest source of greenhouse gas emissions, just behind the use of fossil fuels", explains the researcher.

Limiting global warming

Reducing deforestation in the Amazon is a key challenge and a major lever for limiting global warming. One of the tools proposed to achieve this is the REDD+ scheme, which stands for Reducing Emissions from Deforestation and Forest Degradation. " Under this scheme, the developed countries that emit the most greenhouse gases pay compensation to developing countries to maintain their forest cover," explains Gabriela Demarchi, who points out that over the last few decades there has been a proliferation of projects of this type in the Brazilian Amazon.

During her thesis at the Centre d'économie de l'environnement in Montpellier, the economist examined one of these programs, implemented between 2013 and 2017. Objective: to assess its effectiveness in reducing deforestation. This program, called PAS, is based on what are known as payments for environmental services. "This pilot initiative is based on financial compensation to encourage farmers not to cut down trees on their land," explains the Brazilian researcher.

Statistical twins

In practice, 350 small-scale farmers received a sum of money in exchange for a commitment to maintain forest cover on their farms. " Farmers cut down trees to turn the forest into farmland or to raise livestock, so we pay them money to compensate for their loss of income and provide them with an alternative way of making a living," explains Gabriela Demarchi.

But how can the effectiveness of such a scheme be assessed ? With such a scenario, it seems complicated to know whether or not the farmer would have deforested his plots even if he hadn't received monetary compensation, so these programs are complicated to evaluate". So the economist resorted to what is known as an impact assessment based on the reconstitution of the counterfactual situation. "We found rural households with characteristics as close as possible to those enrolled in the program, and called them statistical twins. If the behavior of the statistical twin differs from that of the twin taking part in the study, then we can deduce that the program has indeed had an impact. And the researchers were able to quantify this impact: "the program helped reduce deforestation on these farms by between 15% and 43% between 2013 and 2017", explains Gabriela Demarchi. But what happens when the program ends and the owners stop receiving subsidies? "The risk is that they cut more trees to catch up from previous years, in economics this is called a rebound effect. "

Rebound effect

The researchers observed that while farmers did return to their usual practices after the interruption of compensatory payments, they did not catch up with their "deforestation backlog". " This means that the environmental gain generated by the program was maintained, so the forest was indeed preserved," points out Gabriela Demarchi.

A beneficial impact for the Amazon and virtuous consequences for global warming, as each tree preserved is as many greenhouse gases less. " If we convert the environmental gain into a monetary gain based on the social cost of carbon, then we can estimate that the benefits of the program have outweighed its costs, and that it can be considered profitable," explains the economist.

Profitable, but with room for improvement. Would the program have been even more effective if the contract offered to farmers had been more flexible? "In this case, the deal was that the slightest tree cut would get them out of the program. We could imagine a contract where cutting down a few trees would result in penalties without ending the subsidies, which would keep more participants in the program," explains Gabriela Demarchi. In pursuing this study, the researchers set up a randomized controlled trial. This was the first of its kind to be carried out 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 make the operation unprofitable in the end.

This research may encourage decision-makers to invest in this type of scheme, "but it may also enable the sums invested to be better distributed so that the program is even more effective", stresses the researcher, who now aims to study this issue on a larger scale and over a longer period. "There is also a risk of what we call a leakage effect: when we stop cutting in one place, we cut more elsewhere, so we need to analyze the impact of these programs on a large scale".

1. Moisa (Cirad, Inrae, IRD, Institut Agro, Ciheam)
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