Markets for habitat: an application of tradeable development rights in Brazil Kenneth M. Chomitz, Timothy S. Thomas, Antônio Salazar Brandão

BIOECON IV, Venice 28 August 2003All interpretations and conclusions are the authors’ and are not to be attributed to the World Bank, its Board of Directors, or the countries they represent.

Context: balancing agricultural and conservation uses of land Environmental services markets:

incomplete, inadequate Detailed agroecological zoning:

imposes large costs on some; politically problematic

Tradeable permits: potential to reduce cost; but what should be the scope of tradeability?

Reserva Legal (RL): History Codigo Florestal, 1965 (precursor in 1930’s)

Requires each property to keep 20% in forest Motivation: a reserve for timber, fuelwood

1970’s, 1980’s: little enforcement effort 1990’s: RL now seen as a biodiversity

conservation device late 1990’s: increased attention to

enforcement Boosted RL requirement for Amazonia Env. Crimes Law, 1998: higher penalties

Inefficiencies of property-wise RL requirements

Economic: Constrains use of soils with high

agricultural value Environmental

No special attention to biodiversity priority areas

Promotes fragmentation

Reserva legal:Enforcement without trading

20%Floresta Primária

Floresta Degradada

Good quality cropland: R$100/ha/yr

Low qualityPasture land: R$20/ha/yr

Propriedade no 1 Propriedade no 2

Enforcement without trading

20%Floresta Primária

Floresta Degradada

Good quality cropland: R$100/ha/yr

Low qualitypasture:R$20/ha/yr

Required reforestation:ExpensiveReduced output and employmentLittle environmental gain

Legal deforestation:Little economic gainLarge environmental loss

reforestation

deforestation

Enforcement with trade

20%Floresta Primária

Floresta Degradada

Good quality farmland: R$100/ha/yr

Low quality pasture: R$20/ha/yr

rights

$

Permanent protection

Reserva legal

Reduced compliance cost

Greater forest protection

biome

basin

Choosing the domain of trading

microbasin

Advantages of different trading domainsSmaller Domains Greater

representation of variability in genes, species (if anything is left!)

Local environmental benefits

Larger Domains Less

fragmentation Greater viability Greater gains

from trade

Simulation for Minas GeraisFour trading domains compared: Command and control (no trading) Within municipio Within basin-biome combination Within biome

Biomes and principal basins

BiomesCAATINGACAMPO RUPESTRE DE ALTITUDECERRADO E CAMPO CERRADOFLORESTA ATLÂNTICA

Basins

Assumptions: properties with ‘excess’ forest (>20%) Can sell RL rights corresponding to

excess Can also sell RL rights from natural

regeneration Regeneration assumed to be vigorous

(because seed sources are present) Can deforest down to 20%, but then

prohibited from selling RL rights No deforestation in Atlantic Forest

biome

Assumptions: forest-deficit properties (<20% forest cover) Comply either through natural

regeneration, or through purchase of RL rights

Regeneration assumed to be low quality – no seed source, heavily worked land

No deforestation permitted

Data Land cover data in ag

establishments: census tract level (treated as ‘virtual properties’) Breakdown: natural forest, natural and

planted pasture, annuals, perennials Land value data: municipio level

Forest, crops, planted pasture, natural pasture

Deriving supply and demand curves Assume homogenous land values

by land cover within municipio Derive step-functions for

abandonment of crop or pasture land, reservation of forest land at the census tract level

Aggregate over all census tracts

Derived supply and demand -- example

D

0 .5 1 1.50

25

50

75

100

125

S

Demand

0 .5 1 1.50

25

50

75

100

125 Supply

Re

ais

pe

r h

ec

tare

Hectares (millions)

Land Price

M e a n l a n d

s a l e p r i c e s 7 0

- 2 0 0 2 0 0 - 4 0 0 4 0 0 - 7 0 0 7 0 0 - 1 0 0 0 1 0 0 0 - 1 5 0 0 1 5 0 0 - 3 1 8 0

Current forest0 - 0.050.05 - 0.10.1 - 0.190.19 - 0.210.21 - 0.40.4 - 0.70.7 - 1

Areas important for biodiversity

Forest cover on agricultural establishments

Quality forest with biome-basin trading0 - 0.050.05 - 0.10.1 - 0.190.19 - 0.210.21 - 0.40.4 - 0.70.7 - 1

Areas important for biodiversity

Forest cover: basin-biome scenario