Can direct payments avert deforestation in the Brazilian Amazon?

In a bid to find a solution to the dual crises of climate change and deforestation, the REDD program has emerged as a potential "win-win" conservation idea.

The basic concept of REDD (Reduced Emissions from Deforestation and Forest Degradation) is that funds, generally from the developed north, are used to avoid deforestation by rewarding landholders of tropical forests for not clearing them.

Deforestation in the tropics accounts for somewhere between 12% and 20% of global greenhouse gas (GHG) emissions and thus slowing its rate would represent a major contribution toward mitigating climate change.

But according to proponents the benefits wouldn’t stop there; they would also include cash transfers to poor tropical countries from rich ones, biodiversity conservation, the protection of cultural values, regional climate regulation, and others.

While this all sounds promising, the question arises whether underlying social and economic preconditions exist in many countries for REDD to be successful.

A recent study led by Jan Börner addresses this question by examining the potential scope for implementing REDD in the Brazilian Amazon through direct conservation payments and the equity implications.

Brazil, leading the world in absolute amount of deforestation and containing much of the world’s largest tropical rainforest the Amazon, is plausibly the most crucial venue for application of REDD initiatives.

The payments for environmental services, or PES as the mechanism is typically called, will only happen where external beneficiaries are willing to pay local landholders to ensure a critical service (e.g., protection of forest carbon) produced on their land.

Local landowners may not be sufficiently swayed by these payments unless those transfers exceed their opportunity costs, usually defined as earnings foregone by not converting forested land to its most profitable alternative use.  

The opportunity costs for Amazonian municipalities are determined by calculating the economic returns for the major land uses after deforestation, predominantly pasture and permanent annual crops like soybeans.  

In areas threatened by deforestation, these opportunity costs are compared to a conservative carbon offset price of $3/tCO2, a proxy for payment level, to find the quantity of forest area in which PES would be competitive and stop future forest clearance.

Assuming a ten-year REDD program, approximately half of the baseline projected deforestation, 12.5 million ha, would be averted.  When extending out to year 2050, eighty-one percent of the forecasted forest loss could be avoided.

In the ten-year scenario, over 55% of the payments would go to large landholders; though this finding seems logical given that they engage in about four-fifths of all deforestation.

These results would be good reason for optimism if it were not for some complicating real world issues.
Operational transaction costs, a common bugbear dogging these type of schemes, are actually figured to be rather small, less than 10% of PES transfers, and thus do not pose a serious problem.

The real pitfall concerns finding the eligible service providers who have control over what happens on their land and whose avoidance of deforestation can be compensated legitimately.  

Institutional preconditions needed for a PES-based REDD program to function are sorely lacking in the Brazilian Amazon, where land grabbing, undefined and insecure land tenure, and overlapping claims limit program feasibility to only one-third of deforestation projected to occur by 2050.  

PES incentives hold much promise for reducing deforestation, but this promise can be realized only where basic governance systems can clarify and enforce private property rights.

--Aaron Jenkins is a research associate with the Nicholas Institute for Environmental Policy Solutions at Duke University and a guest contributor to Conservation Maven.

Börner, J., Wunder, S., Wertz-Kanounnikoff, S., Tito, M., Pereira, L., & Nascimento, N. (2010). Direct conservation payments in the Brazilian Amazon: Scope and equity implications Ecological Economics, 69 (6), 1272-1282 DOI: 10.1016/j.ecolecon.2009.11.003