Environmental and Welfare Impacts of Deforestation Reduction in Brazil

In this study, we analyze the potential effects of several scenarios of deforestation reduction in Brazil, with a focus on the distributive side effects of the policy, using a detailed inter-regional, bottom-up, dynamic general equilibrium model. We build three deforestation scenarios using detailed information on land use in Brazil, from satellite imagery that comprises deforestation patterns and land use by state and biome. This information includes agricultural suitability of soil, by biome and state, as well as the classification of land between private and public lands. Results show, for the period under consideration, low aggregate economic losses of reducing deforestation in all scenarios, but those losses are much higher in the agricultural frontier states. Reducing deforestation has also a negative impact on welfare (as measured by household consumption), affecting disproportionately more the poorest households, both at national level and particularly in the frontier regions, both by the income and expenditure composition effects. We conclude that although important from an environmental point of view, those social losses must be taken into account for the policy to get general support in Brazil.