Would Carbon Pricing Reduce Deforestation? Insights from illustrative simulations of GTEM augmented with a land use change and forestry module

This paper describes a numerical implementation of the global trade and environment model (GTEM) augmented with a new land use change and forestry module developed in Pant (2010), under some extreme assumptions. Also described are the simplifications made to the structure of the module and additional simplifying assumptions made in deriving a stylised database to calibrate the module in a way that is consistent with the overall structure of GTEM and its underlying database. The results reported in this paper are based on a stylised database and parameter values, and extreme modelling assumptions. These are for illustrative purposes only and should not be used for policy design. Preliminary simulation results indicate that a higher carbon price: (i) discourages land clearing, both legal and illegal, (ii) reduces net emissions from land use change, (iii) reallocates land mainly from livestock production to forestry activity, and (iv) encourages investment in commercial forestry more than in environmental forestry as logs from native forests become more expensive. The magnitude of these results could alter substantially under more plausible assumptions regarding the carbon policy scenarios, population and technologies involving a switch from wood to non-wood products. The purpose of this technical paper is to seek expert advice and feedback on the analytical framework from the conference participants as well as identifying the need for critical data and, thereby, encouraging the development of a more realistic forestry related database and a consistent disaggregation of the GTAP database.