An Economic Analysis of REDD Carbon Payments on Agricultural Expansion in Bolivia

by Stich, Monica

As deforestation accounts for a significant percentage of worldwide carbon emissions, reducing emissions from deforestation and degradation (REDD) has been the focus of intense international debate. REDD programs offer a financial mechanism to compensate areas that would have been deforested for avoided carbon emissions above an established baseline. This study examined the feasibility of such a program in El Chore Forest Reserve in Bolivia, which faces destruction from the illegal seizure of land by poor immigrant farmers.

Three main components were used to obtain a spatial distribution of the minimum price of carbon required for conservation (i.e. compensate for the opportunity cost of agriculture): estimation of biomass, prediction of deforestation, and calculation of the opportunity cost. A map of biomass was estimated by regressing spectral enhancements of 2007 satellite imagery on a spatially coarse reference map of the Amazon region. It was concluded that the reserve has an average biomass of 121.1 Mg biomass/ha with a standard deviation of 15.58.

The spatial probability of future deforestation was calculated using a logistic analysis on deforestation between 2001 and 2004 based on biophysical variables. By applying a projection of area deforested per year based on historical trends, the results indicated the area that would be deforested. In the absence of intervention, it was predicted that 44% of the forest reserve would be converted to agriculture by 2036 (Kappa: 0.57).

The opportunity cost was modeled using profit predictions of the four main crops (rice, soybean, maize, wheat). Depending on the crop, projections indicated that prices would increase 35-100% and yields were expected to increase 55-88% by 2040. Expected profits were scaled based on the suitability of the land by crop. The average opportunity cost for a three-year time period ranged from $904/ha in 2006 to $2143/ha in 2036.

Using an economic model with an 8% discount rate the average price would need to be $21.17/tC. Since the biomass estimate is conservative, this is likely an upper bound on the price of carbon. These results could be used to inform the development of a carbon program and determine target areas for conservation initiatives.