Assessing the Market Benefits of Reducing Deforestation: A General Equilibrium Investigation

Deforestation is one of the major sources of greenhouse gases (GHG) emissions, accounting for around 17% of total global GHG discharges. As the role forests play in the global carbon cycle has been widely recognized, several studies analysing the potential contribution of avoided deforestation credits in a carbon market have already been performed, showing that these credits should play a substantial role in an overall portfolio of mitigation strategies. Using a dynamic, multiregional Computable General Equilibrium (CGE) model, the ICES model (Intertemporal Computable Equilibrium System), this paper follows a novel approach, since deforestation emission reductions are not linked to a global carbon market, as commonly used. Instead, we use a global warming approach which provides an additional valuation criteria: the market general equilibrium value of halting/reducing deforestation, based on climate change impacts. This exercise consists on the formulation of a scenario where carbon emissions from deforestation are reduced by 50% and 100%, thereby producing a different CO2 concentration levels in the atmosphere and a corresponding variation in temperature. Those changes in temperature in turn impact the economy at various levels, and the corresponding indirect effects are then assessed. Moreover, such an exercise may provide additional information to policy makers considering the creation/participation of an international fund to protect tropical forests. In fact, market valuation for avoided deforestation can be provided not only for a complete halt of deforestation but also for different reduction targets. Finally, and taking advantage of the dynamic feature of the model, different paths for a same global level of reduced deforestation are simulated, shedding new lights on the temporal value of reduced deforestation.