1. Economics of Tropical Deforestation Chapter 13 in: van Kooten, G. C. and Folmer, H. (2004), Land and Forest Economics, Edward Elgar, Cheltenham.

2. Introduction As defined by the Food and Agricultural Organization, tropical forests are areas located between the Tropics of Capricorn and Cancer where at least 10 percent of the area is covered by woody vegetation. Tropical rain forests receive over 100 inches of rain per year, with the wettest areas well over twice that amount. Tropical dry forests are semi-arid with a mixture of grassland and forests.

3. Tropical forest cover in 2000 = 1.73 B ha (down from 1.91 B ha in 1981)

5. Tropical Rainforests Tropical rainforests provide for a rich diversity of species, with over half of the world's 10 to 30 million species found in rain forest habitat. According to some researchers, as many as 10 to 30 million yet to be discovered species live in rainforests. Rainforest rivers are more diverse than their temperate counterparts. While the nutrients within a temperate forest are stored in the soil, the soil of the rain forest is relatively barren of organic matter. Nutrients within the tropical forest are immediately absorbed by the lattice work of roots of trees, vines, and other forest vegetation. These nutrients are stored in the biomass of the plants

6. Tropical dry forests and savanna The tropical dry forest has decidedly less rain and biomass per unit acre than the wet forest. This also results in a greater ratio of nutrients in the soil than in the trees, although the ratio is still less than that in temperate forests. Animal life tends to be terrestrial, as the grass that covers the areas under the trees and between the trees also forms a significant basis for the food web.

7. Patterns and rates of deforestation USA: +0.2%; Europe: +0.3%; World: -0.2%

8. Tropical deforestation –1980 to 1990 = 15.4 M ha/y –1990 to 2000 = 14.2 M ha/y Perhaps still unacceptably high(?)

9. Patterns and rates of deforestation Putting tropical deforestation into context Approximately 90% of (modern) tropical deforestation occurred between 1970 and 1990 If true, then tropical forests at their greatest extent within the last 300 years or so covered 2.2 B ha We still had 1.73 B ha (79%) of tropical rainforest in 2000 (an area the size of South America) At current harvesting rates, tropical forests will persist well into the 22 nd C

10. Patterns and rates of deforestation Current tropical deforestation has parallels with deforestation that occurred between one and three centuries ago in Europe, North America and Australia. In the USA, much of the forestland in the east was converted into pasture and cropland The Homesteading Act required land clearing as a prerequisite for obtaining land title A similar policy existed in Brazil until recently In both Europe and the USA, forest has regenerated (mostly naturally) over large areas that had been cleared after farms were abandoned

11. Patterns and rates of deforestation Deforestation and forest modification in the American tropics only recently returned to levels prior to 1492 Evidence of large and sophisticated civilizations now ‘buried’ in tropical forests of Cambodia and Indonesia Appears deforestation is typically reversible, but seems irreversible because of time required

12. Tropical deforestation and biodiversity loss Tropical deforestation is claimed to cause the extinction of 14,000 to 40,000 species per annum These estimates are based on relationships between number of species and habitat area, not counts of species lost. Many criticisms of the species-area technique For an economist, foregone economic value is important, not number of species lost

13. Economic value of tropical forests Tangible Products Timber – clearfelling for conversion to other land use or selective logging Non-timber forest products (NTFP) – game, rattan, nuts and fruits –Locally highly important, but downward sloping demand for NTFP, uncertainty about sustainable supply, inaccessible areas. Eco-tourism – locally important. Unlikely to become a major factor in promoting forest conservation

14. Economic value of tropical forests Indirect Use Values (i.e. Regulatory Functions or Ecosystem Services) Watershed protection Soil protection Carbon sequestration and storage Climate regulation – Large rain forests create a micro-climate, including their own rainfall Biodiversity conservation (including ‘biodiversity prospecting’ for medicines)

15. Economic value of tropical forests Non-use values Existence Option Bequest

16. Economic value of tropical forests Economic decisions are made at the margin – whether to cut the next hectare of forest Problem with average economic value estimates

17. Economic value of tropical forests With the possible exception of carbon sequestration, the marginal value of non- timber tropical forest amenities is small compared with timber and agricultural values Conclusion: it may not yet be globally optimal to stop all tropical deforestation Some economic studies in Cote d’Ivoire and Costa Rica have concluded that these countries still have more tropical forest than is socially optimal

18. Economic value of tropical forests However, as more tropical forest is lost, the marginal costs of further conversion are likely to rise. Deforestation is likely to slow and perhaps cease as temperate forest clearing has virtually ceased MSB Q tropical deforestation per annum MSB and MSC ($) MSC Y2005 MSC Y2020

19. Economic value of tropical forests Tropical rain forests have both private and public benefits and since these public benefits accrue not only to the citizens within the country in which the rain forests are contained, but also to the citizens of the world, there is a tremendous potential for two-tiered market failure. The rate of harvest within the country may exceed the socially optimal rate; however, policies designed to correct this would likely not consider the benefits derived by citizens in other countries. In other words, even if countries choose internally efficient policies to address market failure, they may not be globally efficient.

20. Causes of tropical deforestation Causes complex and not well understood Complications: –Poor and inadequate data –Failure to consistently define ‘deforestation’ and ‘shifting cultivation’ –Failure to distinguish between ‘logged’ areas converted to another use, residual forests and fallow forests –Confusion regarding final and proximate causes of deforestation. e.g. roads are a proximate cause of deforestation –Causes vary by region and by viewpoint of the analyst

21. Causes of tropical deforestation Commercial logging Common, but simplistic view, now largely rejected Usually selective logging, not clearfelling –Studies in West Africa reveal <10 trees per ha out of a total of about 350 trees/ha –But often more intensive in Asia – up to 40% of the stand Selective logging can be damaging Rotations typically of 30 to 70 years in Asia Contribution of logging to deforestation estimated at between 2% and >20%

22. Causes of tropical deforestation Conversion to Agriculture Primary cause, esp. in Africa and Latin America Forest owners not compensated for the public good benefits – incentives to clear MSB = MPB MSB and MSC ($) MPC MSC Forest area cleared (ha)

23. Causes of tropical deforestation Relationship between logging and conversion to agriculture? Traditional ‘shifting cultivators’ or ‘forest pioneers’ But once established, pioneers don’t contribute further to deforestation Shifting agriculture may be more suitable when population densities are low

24. Causes of tropical deforestation Income and deforestation

25. Causes of tropical deforestation As a income rises people demand more wood products – stimulate logging industry, uses – construction, energy (fuelwood) There comes a point where an affluent society has greater demands for environmental amenity and this exceeds the desire to permit further deforestation Evidence for this relationship is mixed

26. Causes of tropical deforestation Population and deforestation Poorly understood Increasing population can increase demand for fuel other wood products and agricultural outputs In temperate countries, many examples of increasing population accompanied by increasing forest area Typically in tropical countries increasing population leads to more deforestation Simple analyses yield nonsensical results –Philippines high population density, but low rates of deforestation between 1990 and 2000 – very little forest left!

27. Causes of tropical deforestation The Role of Government According to some, ultimate cause is that governments wish for it to happen No desire to reform the economy, where privileges accrue to the ruling class Government failure may be more important than market failure Many government policies appear to promote deforestation and reduce the welfare of society at large:

28. Causes of tropical deforestation Direct subsidies to cut down forests Low timber harvesting license fees (indirect subsidy) Creation and protection of an inefficient timber industry (Indonesia) Direct subsidies to cattle ranchers to generate foreign exchange (Brazil) Rules for land ownership that require deforestation Migration policies

29. Causes of tropical deforestation Public Policies: Land Tenure Property rights and incentives to protect the forest Short-term concessions Volume-based based royalty fees instead of area based Enforceability of rights

30. Causes of tropical deforestation Log export trade restrictions Encourage domestic processing What are export restrictions likely to do to log prices?

31. Figure 2 International Trade in an Exporting Country Copyright © 2004 South-Western Price of timber 0 Quantity of timber Domestic supply Price after trade World price Domestic demand Exports Price before trade Domestic quantity demanded Domestic quantity supplied Gains and losses for Exporter

32. Causes of tropical deforestation Forests become less valuable (more conversion) Processing firms use inefficient conversion technologies (cheap resource) E.g. Indonesia uses 15% more wood fiber per unit of plywood than elsewhere in Asia