Paying Up to Save the Amazon May Be Cheaper than the Alternative

In April, President Joe Biden announced that the United States will donate $500 million to the Amazon Fund, a program run by the Brazilian government to fund conservation projects and combat deforestation in the world’s largest rainforest. If world leaders hope to preserve the Amazon’s role as an important bulwark against climate change, more such international payments would be prudent—and could be a reasonably cost-effective way of reducing carbon emissions, according to research from the Climate Policy Initiative’s Juliano Assunção, Chicago Booth’s Lars Peter Hansen (a Nobel laureate), Argonne National Laboratory’s Todd Munson, and Columbia’s José Scheinkman.

The Amazon’s plant life soaks up 1.5 billion tons of carbon emissions every year, and contains a far greater quantity of stored carbon. The forest is so vast that it is most easily described on the scale of countries: it is only slightly smaller than the contiguous US, but shrinks by an area nearly equivalent to Kuwait every year due to deforestation. Much of this deforestation occurs in Brazil, which contains around 60 percent of the Amazon, and is done to free up land for agricultural use, especially cattle farming.

About 17 percent of the Brazilian Amazon has disappeared due to deforestation in the past 50 years. Some scientists estimate that once 20–25 percent of it is gone, it may reach a tipping point that will disrupt its hydrologic cycle—the process by which rainwater is recycled via vegetation and returned to the atmosphere—meaning large portions of it could turn from forest into savannah.

Because the Amazon’s carbon-capturing capacity benefits the whole globe, while the costs of forgoing increased agricultural activity in the area affect Brazil alone, it may be prudent for the international community to pay Brazil to limit deforestation. But how big should such transfers be, and what effect would they produce?

Assunção, Hansen, Munson, and Scheinkman explored these questions using a dynamic spatial model meant to capture the trade-off between using land for agriculture and preserving or restoring it as forest. The model incorporates the large degree of variation that exists between areas in the Amazon in terms of their productivity as agricultural land and their ability to absorb carbon.

“It’s not just a case of doing less deforestation; it’s also an issue of where you do it at,” Hansen says. Treating every square mile of the Amazon as equal in its capacity for productive agriculture or carbon capture would obscure the picture of what’s gained and lost by a particular allocation choice.

The model allowed the researchers to predict how land would optimally be allocated to maximize the welfare of Brazil given a particular price per ton of carbon emissions. For instance, looking at how land is currently allocated, they were able to calculate a “shadow price” of carbon that reflects the trade-off Brazil is currently willing to accept between agricultural productivity and carbon emissions. They find that price to be around $6 per ton—and at this price, with no international payments to change local incentives, the model predicts that the Amazon will cross the threshold of 25 percent deforestation within about 20 years, and that in the next 30 years, deforestation will produce net emissions of 31.6 billion tons. (Brazil’s total CO2 emissions for 2021 have been estimated at 2.42 billion tons.)