Reports all
around suggest fires are raging around all over in the Brazilian rainforest. The
Amazon rainforests seem to be headed towards deforestation and destruction.
Unlike the forest fires of Australia or California or South East Asia, the
fires in the Amazon are not due to natural causes but seemingly man made. Apparent
encouragement of manmade fires to clear vast swathes of land for cattle grazing
to agriculture to possible industrialization is adding to the woes. The global community
seems to be overworked especially given the pandemic originating in Wuhan. The
government in Brazil is apparently encouraging these fires. Brazil’s President
Jair Bolsanaro is perhaps a bete noire to the left liberal chatterati across
the world and this has given just another opportunity to go hammer and tongs at
him. Woke entails articulation and perhaps practice at least symbolic of
environmental protection and towards minimizing pollution. Anything contrary is
frowned upon.
It is a
different matter there are structural asymmetries that exist in historical
pollution patterns. Kuznet’s curve posits an inverse relation between the GDP
growth rate of a country and pollution levels. At lower GDP growth rate for
developing countries, the only way they can boost their growth is certain
tolerance of pollution. For developed countries, they can afford to emphasize environment
protection sacrificing some growth and further given the access to technologies
that enable clean production. These technologies given their cost structure are
not affordable to the developing world unless heavily subsidised by the
advanced West. Yet the environmental protocols, negotiations and agreements all
tend to focus on uniformity in pollution reduction targets. They proceed on an
assumption that all countries have equal responsibility to reduce emissions
without factoring in the current state of growth and the rate of growth that is
essential for becoming a developed country sometime in the future.
US might afford
to talk of environmental protection and emission reduction though in practice,
the evidence often portrays a contrary picture. President Trump of course is
anti-woke and thus anti-environment. Bolsanaro too follows his footsteps. In
India, Prime Minister Modi is an environmental conservative in contrast to
these two leaders. President Bolsanaro therefore has adopted an approach that
seeks to trade off Amazon forests with agricultural land. Expanding
agricultural production and animal husbandry entails some destruction or rather
to use a more polite word clearing of Amazonian rainforests. To woke, any
compromise is impossible and gets framed in the climate change debate. To people
in the region, it is an existential survival and words like climate change that
apparently might be visible in the distant future might not be appealing.
Incidentally, in
this context, it would be worthwhile to recollect John Keynes. To Keynes, in
the long run everyone is dead, so therefore why worry about the same? This put
forth a strong opposition to the classical economic theories that focused on
saving and thus shifted the debate towards consumption and investment led growth.
Similarly, to many in the rainforest region, climate change is perhaps so long
away that apparently there need not worry at this stage and instead focus on
the survival in the present. The present demands clearing of land to produce
food and rear animals. It is thus obvious that their priorities in contrast to
woke seem right.
Recently, there
was a podcast from Freaknonomics on this rainforest issue. The podcast was
titled “The Simple
Economics of Saving Rainforests”. Without doubt, the podcast did touch upon
the livelihood issues and emphasized the current incentive structure favouring the
clearing of the forest. The deforestation was reversed from around 2002 onwards
before in the last few years, the rise of Jair Bolsanaro to power has reversed the
tide yet again. The solutions the podcast seem to revolve around carbon credits
lost etc and heavily loaded with jargons. These of course merit deeper
discussion over the feasibility and practicality. Yet, there was one statistic
that managed to catch the eye.
It suggested to
an average Brazilian cattle rancher, clearing one hectare of a forest in the
Amazon region boosted the value apparently by $1,000. The podcast suggested
that in the event of preserving the rainforest, every hectare would generate a
benefit of $28,000 to the global economy at a conservative estimate. This was
based on the carbon this would absorb in the forests. The added externalities
would be the tourism and biodiversity growth which would further boost the
value.
There is no
doubt that every hectare of forest planted or preserved adds up the carbon
absorbed which otherwise would be released into the atmosphere. The carbon
emission have their impact on the health of the population thus reducing
possibly productivity while increasing the health care expenses. However, this
analysis misses a very simple point. As with any discussion in economics, this
too could be understood through measuring costs and benefits.
Every hectare
cleared generates a marginal benefit of $1,000 to the cattle rancher. This
benefit is to the rancher her/himself and thus people would respond to the
incentives the outcome being clearing of the forests. There is an opportunity
cost to the same which the podcast suggested as $28,000. The $28000 realization
to the global economy in terms of carbon absorption is being sacrificed to
benefit a cattle rancher to the worth of $1000. Prima facie, this seems a bad
deal. Just that in the actual calculations this is not a bad deal to the
rancher. The cost benefit analysis extends to a discussion on the beneficiaries
and those who pay the costs. It is about individual benefit and individual
cost.
To an individual,
the benefit is obviously $1000 and thus concentrated. Yet the opportunity cost
is not specific to individual rancher but to the global society as a whole. The
costs thus are borne by the society as a whole. Assume for the moment this is
the cost that is borne by the population of Brazil or maybe the South Americans
in general. The population of Brazil is estimated to be around 210 million. If we
consider the South American population, it would be around 420 million. These marginal
costs of $28000 per hectare lost is not borne by the rancher alone but by these
210 or 420 million living in Brazil or the continent. This would work out the
average cost in few pennies thus the people simply would not bother. The benefits
are concentrated, the costs are diffused thus the ecosystem gets threatened.
Unfortunately, in the quest for jargons and high worded measures and metrics,
the simple cost benefit analysis logic gets side-lined and ignored. Any solution
to the deforestation in the Brazilian rainforest must factor this inequity in
diffusion of benefits and costs. The solution must rework the benefits and the
costs wherein the individual clearing the forest must bear the costs also.
Unless this simple economic proposition is tested, factored and applied it is
unlikely the debate will be solved anytime soon.
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