The Costs of Reducing Carbon Emissions from Deforestation and Forest Degradation in the Brazilian Amazon: Designing a Politically-Feasible Approach Daniel Nepstad & Frank Merry World Bank May 27, 2008
Collaborators: Britaldo Soares-Filho (Univ. Federal Minas Gerais) Andrea Cattaneo (WHRC) Paulo Moutinho (Instituto de Pesquisa Ambiental da Amazonia) Steve Schwartzman (Environmental Defense) Tracy Johns (WHRC) Oriana T. Almeida (Universidade Federal do Para, IPAM) Sergio Rivero (UFPa) Maria Bowman (WHRC)
Carbon emissions from tropical deforestation 1998: emissions from forest fires in Amazon and Borneo = 1.5-2.0 Pg 1/3 Paige et al. 2003 Science; Alencar et al. 2006 Earth Int. Tropics Non-tropics Long term 50% 50% 1990s 100% 0% Houghton et al. 2005 in Moutinho and Schwartzman, Eds.
Amazon 2030: 55% cleared or degraded; 15-25 B tons C emitted Nepstad et al. 2008. Phil Trans Roy Soc
Politically feasible REDD Core assumption #1 Over what time period will payments be made? More than a century! Payments commensurate with reductions In most nations deforestation is <1% per year
Core assumption #2 What benefits for indigenous/traditional forest people? Forest people are forest guardians, or potential forest guardians, and deserve compensation
Core assumption #3 Compensating private landholders for forest conservation? Yes, even if conservation is a legal requirement. Long-term incentives are necessary to compensate for the opportunity costs of forest conservation.
Core assumption #4 Compensating governments to protect their own parks? to implement their own environmental laws? Yes. Laws can be undone. Parks can be undone. Long-term incentives are needed for forest protection.
Core assumption #5 Is it possible to avoid the TFAP trap through multiple-stakeholder processes and efficient fund designs? Yes. Without these attributes, REDD will fail.
Core assumption #6 There are substantial economic benefits of forest conservation that offset the opportunity costs of forest conservation
Core assumption #7 Enormous spatial variation in the suitability of forestlands for conversion to crops and livestock
Successful REDD programs will be negotiated How to allocate payments? This will be the focus of negotiations Carbon Market Payment for Reductions %? %? %? Forest Peoples Fund Private Forest Fund Government Fund Reduction of Emissions Demonstrated
Two components of our analysis: 1. Illustrative example of actual costs for compensating (a) Public Forest Stewards (Forest People), (b) Private Forest Stewards, and (c ) the Government 2. Opportunity costs of reducing forest clearing, using spatial rent models, as a ceiling
Future forest allocation in the Brazilian Amazon (achieved in 10 years): 27% 40% indigenous land, extractive reserve 6% 10% biological reserves, parks 4% 20% national/state production forests 0% 10% legal private forest reserve
30 years of REDD: Carbon emission reduction below baseline (6.3 B tons) Carbon emission reduction below projected (~20 B tons) The price of carbon: Full compensation of $41B in opportunity costs=$6.5/ton C Adjusted costs = $1.2/ton C
Total forest carbon stock: 48 B tons Total opportunity costs of remaining forests: $257B Cost per ton C: 90% <$5 94% <$10 Is this curve helpful for the policy debate?
How much will it cost in practice? Forest People Fund ( Public Forest Stewardship Fund ) Forest family subsidy ($1,200/yr) Forest protection/management ($10/km2)
How much will it cost? Private Forest Stewardship Fund 100% compensation of opportunity costs for forests beyond legal requirement 20% compensation for forests required by law
How much will it cost? Government Fund Public land protection/management ($20/km2/yr) Protected area creation ($50/km2) Private land licensing/monitoring $10M/yr) Services (heatlh, education, credit) ($700/family/yr)
The Costs of Reducing Deforestation 600 500 US$ (millions) 400 300 200 100 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Year Forest People Private Government
Spatially-Explicit Models of Rent for Timber Production, Cattle, and Soy Amazon timber industry and logging model Brazil beef industry and cattle model
The Amazon timber industry Industry dynamics Frontier expansion in 3 periods Log production: ~20 to 24 million m 3 3,000+ mills Poor technology adoption million m 3 logs 100 80 60 40 20 Forest Policy Logging concessions Decentralization to State control 3 players in industry Conventional vs reduced impact logging 0 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Years Source: IBGE (Merry et al. 2007)
A logging rent model Stumpage values = Returns to forest land = Rents = f(sawnwood Sawnwood price j * tax deduction * processing loss - (transportation cost xy + harvest cost j + milling cost j )*interest rate) Milling centers The model produces dynamic rent surfaces based on wood prices, harvest h and milling costs collected for 588 milling centers located throughout ut the Amazon
Mill Capacity: 140,000m 3 Profitable cells
The boom and bust lifecycle 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 For each time step, a milling center attempts to match its current harvest capacity collecting wood in cells that become profitable. A center s harvest capacity is allowed to increase (up to 20%) or decrease annually according to the profitable wood volume available within its area of influence. As a result, milling centers have a boom and burst lifecycle as they gradually exhaust profitable forests located in accessible regions.
When a center approaches its demise (runs out of profitable volume), it gives birth to new centers located in inner Amazon regions, perpetuating the way the logging frontier evolves. 200 km new pole
Logging Net P. Value (2007-2037) U$ 550 U$ 0
The Cattle Industry in Brazil Brazilian Herd Growth 140 120 Million Head 100 80 60 40 20 0 1990 1995 2000 2005 Year Amazonia Rest of Brazil Brazilian Beef Production Metric Tons (1000 CWE) 12,000 10,000 8,000 6,000 4,000 2,000 0 1960 1970 1980 1990 2000 Year Production Exports Domestic Consumption
Production of Brazilian Beef: size of herd and annual slaughter 250,000 Head of Cattle in Thousands 200,000 150,000 100,000 50,000 0 1960 1970 1980 1990 2000 2010 Head slaughtered Total cattle herd
Cattle rent model format -
$R 100 50 0-50 -100-150 -200 Sample Rent Trajectory (Discounted $R/ha) (Large ranch, Pasture regeneration, High stocking density) Land purchase, forest clearing, pasture formation, and infrastructure investment Debt-free; animal care, electricity Stabilization Pasture and maintenance of reformation herd, continued are (grading, most credit soil significant repayment preparation, costs seeding) to maintain stocking density Repayment on credit for infrastructure, land purchase; Herd evolution -250-300 0 5 10 15 20 25 30 Forested Cerrado Deforested
Major ranching expenditures as a percent of total annual costs 100% 80% 60% 40% 20% 0% 0 10 20 30 Year Electricity Land Purchase Mineral Salt Animal Health Farm Labor Fence Maintenance
Amazônia-minimum investment 2500000 2000000 1500000 1000000 500000 0 300 400 500 600 700 800 900 1000 Amazonia Rondônia Acre Amazonas Roraima Pará Amapá Tocantins Maranhão Mato Grosso
Amazônia-with land purchase, itr, forest income, and tractor 800000 700000 600000 500000 400000 300000 200000 100000 0-2000 -1500-1000 -500 0 500 Amazonia Rondônia Acre Amazonas Roraima Pará Amapá Tocantins Maranhão Mato Grosso
Cattle Net P. Value (2007-2037) U$ 1,150 U$ 0
Discounted Rents 30 years Per ha Soy bean $0 to > $8,000 Cattle $0 to $1,150 Logging $0 to $550 Smallholders
Conclusions: 1. REDD programs are long-term and will be negotiated 2. There are substantial economic benefits associated with REDD that offset opportunity costs 3. The cost of REDD determined by political and economic concerns 4. The cost appears to be highly competitive