Report on Amazon Deforestation

The 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro focused the international spotlight on the problem of deforestation in the Brazilian Amazon. This report was prepared in an attempt to provide both national and international policy makers with quantitative information on the macroeconomic and dynamic trade-offs between economic growth and environmental services under different policy scenarios. This report differs from other studies in that it uses a regional level data set that includes ecological, agricultural and economic data over a time period spanning 1970 to 1985. We use modern econometric methods to model a dynamic system of land use and urbanization to estimate both the short and long run costs and benefits of alternative land uses. Preliminary results from the data analysis indicate that the current level of deforestation in the Amazon has not yet reached the level that would be globally optimal in the sense of equating global costs and benefits. The marginal benefits of economic growth from increased levels of deforestation in those areas with an already relatively high level of deforestation would outweigh the ecological costs. In addition, encouraging agriculturalists to use more intensive land practices with more suitable cropping patterns will discourage further encroachment into virgin rain forest, minimizing global environmental damage. The analysis indicates that the trade-off between economic development and environmental degradation is good for subsidized credit but bad for new road building. Another clear conclusion from the analysis is that the globally optimal level of deforestation will certainly be reached long before the nationally optimal level, due to negative global externalities such as carbon emissions and biodiversity depletion. Although the uncertainties involved in these calculations make it impossible to assign a precise interval of time within which this might occur, the figures indicate that it is likely to happen within one generation, with the exact time depending on which policies are adopted. The estimates further suggest that international transfers to Brazil in excess of $9,000 per hectare would be appropriate compensation to induce preservation of standing rain forest at that time