Green Finance and Deforestation Reduction in Brazil: a PVAR Analysis of the Amazon Fund

Loris André and Julio Ramos-Tallada

Working papers from Banque de France

Abstract: The Amazon rainforest is emitting more carbon dioxide than it can absorb due to deforestation since 2021, leading to significant impacts on global warming. The loss of biodiversity due to land use change in the Amazon biome is also a major issue. Legal Amazon is an administrative area in Brazil that encompasses 64% of the Amazon biome and nine federal states. The Amazon Fund is the main international climate finance vehicle that operates in Legal Amazon. However, its disbursements have recently dropped due to disagreements between donors and the Brazilian government up to 2022. This paper aims to assess the impact of the Amazon Fund’s projects in reducing deforestation along with other factors, such as the national environmental agency sanctions and agricultural production. Using satellite observations and microeconomic data, a panel dataset has been constructed to analyze the evolution of various environmental features, climate finance, regulation, and production from 2002 to 2020 across 760 municipalities in Legal Amazon. A Panel Vector Auto Regression (PVAR) is used to model a stylized economic system in which variables can affect each other at different lags. Our main findings suggest that the Amazon Fund’s disbursements significantly reduce deforestation rates. Federal-managed projects are more effective than those led by states or municipalities. The most efficient projects are those devoted to land use planning, which involves the development and the protection of local autochthonous communities. Overall, we estimate that the Amazon Fund operates with a low abatement cost (between 0.4 and 1.1 EUR per saved ton of CO2).

Keywords: Green Finance; Deforestation; Amazon Rainforest; Panel-VAR (search for similar items in EconPapers)
JEL-codes: C33 C81 F35 Q20 Q54 Q56 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025
New Economics Papers: this item is included in nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:998

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