Impacts of carbon-based policy instruments and taxes on tropical deforestation

Sepul K. Barua, Jussi Uusivuori and Jari Kuuluvainen

Ecological Economics, 2012, vol. 73, issue C, 211-219

Abstract: The impacts of carbon payments and income taxes on curbing tropical forest loss are analyzed under a market equilibrium framework. The supply of cleared forest land was derived by using a two-period utility maximization model when the carbon sequestration of a private forestholder is credited. The land demand was derived from the profit maximization problem of a cash-crop farmer. The model was applied to data from the humid Chaco eco-region of Paraguay. The results indicate that taxes on cash-crop and forestry incomes may in fact be ineffective in curbing forest loss. Carbon payments, however, would effectively reduce forest clearing. In the context studied, a carbon payment of €30 per ton of carbon would limit deforestation to 10% of existing forest cover. A reversible carbon crediting system, in which a forestholder can redeem a credited forest, seems to substantially increase, at least in the short run, the effectiveness of carbon payments. Carbon payments could also complement the tax on cash-crop income in curbing tropical forest loss. An effective policy to combat tropical deforestation should, therefore, jointly consider forestry and cash-crop sectors.

Keywords: Cash-crops; carbon payments; tax measures; market equilibrium; Paraguayan Chaco (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:73:y:2012:i:c:p:211-219

DOI: 10.1016/j.ecolecon.2011.10.029

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