Carbon prices and reforestation in tropical forest

Summary

Focus

Reforestation of tropical forests has great potential for carbon capture and combatting global warming. This paper looks at the potential costs and benefits of reforestation of the Amazon rainforest in Brazil – the largest tropical rainforest in the world. As land productivity in the Amazon is low, paying Brazil for capturing carbon dioxide (CO2) in the Amazon could yield substantial benefits both for Brazil and for limiting global warming.

Contribution

Using rich geospatial data sets covering 60% of the Brazilian Amazon, the paper estimates a historical shadow price of carbon emissions (around $7 per ton of CO2) based on the value of production from cattle ranching as well as the service value of forests through carbon storage. Introducing a contract whereby Brazil receives payment for every unit of CO2 captured generates large net benefits for Brazil and leads to a substantial increase in forested areas.

Findings

Without carbon capture transfer payments to Brazil, the Amazon would emit 17 gigatons of CO2 in the next 30 years, in contrast to 15 gigatons of CO2 capture with transfers of $25 per net ton of CO2 captured. The resulting difference of 32 gigatons is large relative to the remaining carbon budget to limit global warming to 1.5 degrees Celsius. The price of $25 per ton is markedly lower than the current costs of other carbon capture schemes or prices in carbon trading markets.

Abstract

I discuss recent research joint with J Assunção, L P Hansen and T Munson that shows that reforestation in tropical forests has great potential for carbon capture. This research accounts for the dynamics of carbon accumulation in tropical forests and uses a rich data set from the Brazilian Amazon, which encompasses 60% of the largest tropical forest on earth. Specifically, we document that (a) in a business-as-usual scenario, the Brazilian Amazon would emit 17 Gigatons of CO2e in the next 30 years and (b) with transfers to Brazil of $25 per net ton of CO2e captured, optimal land use would imply substantial reforestation in areas currently used for low-productivity cattle ranching, yielding 15 Gigatons of CO2e capture in 30 years. Transfers of $25/ton compare very favorably with other CCS schemes or with prices in carbon trading markets. The total change in trajectory, 32 Gigatons, is large relative to the carbon budget estimated to avoid 50% odds of exceeding 1.5℃ warming. I discuss structures that would give incentives for Brazil not to abandon carbon-capture in the future. I also briefly summarize work in Araujo et al. (2023) that shows that forest degradation in the Amazon generates substantial negative externalities to other portions of the forest.

Non-technical background paper based on main paper "Carbon prices and forest preservation over time and space in the Brazilian Amazon" joint with J Assunção, L P Hansen and T Munson

JEL classification: Q01, Q23, Q54, Q57

Keywords: climate change, carbon emissions, carbon capture, reforestation, tropical forests

• Discussion by Tobias Adrian