Markets for habitat: an application of tradeable development rights in Brazil Kenneth M. Chomitz, Timothy S. Thomas, Antônio Salazar Brandão BIOECON IV, Venice 28 August 2003 All interpretations and conclusions are the authors ’ and are not to be attributed to the World Bank, its Board of Directors, or the countries they represent.

Context: balancing agricultural and conservation uses of land Environmental services markets: incomplete, inadequate Detailed agroecological zoning: imposes large costs on some; politically problematic Tradeable permits: potential to reduce cost; but what should be the scope of tradeability?

Reserva Legal (RL): History Codigo Florestal, 1965 (precursor in 1930 ’ s) Requires each property to keep 20% in forest Motivation: a reserve for timber, fuelwood 1970 ’ s, 1980 ’ s: little enforcement effort 1990 ’ s: RL now seen as a biodiversity conservation device late 1990 ’ s: increased attention to enforcement Boosted RL requirement for Amazonia Env. Crimes Law, 1998: higher penalties

Inefficiencies of property-wise RL requirements Economic: Constrains use of soils with high agricultural value Environmental No special attention to biodiversity priority areas Promotes fragmentation

Reserva legal: Enforcement without trading 20% Floresta Primária Floresta Degradada Good quality cropland: R$100/ha/yr Low quality Pasture land: R$20/ha/yr Propriedade n o 1Propriedade n o 2

Enforcement without trading 20% Floresta Primária Floresta Degradada Good quality cropland: R$100/ha/yr Low quality pasture: R$20/ha/yr Required reforestation: Expensive Reduced output and employment Little environmental gain Legal deforestation: Little economic gain Large environmental loss reforestation deforestation

Enforcement with trade 20% Floresta Primária Floresta Degradada Good quality farmland: R$100/ha/yr Low quality pasture: R$20/ha/yr rights $ Permanent protection Reserva legal Reduced compliance cost Greater forest protection

biomebasin Choosing the domain of trading microbasin

Advantages of different trading domains Smaller Domains Greater representation of variability in genes, species (if anything is left!) Local environmental benefits Larger Domains Less fragmentation Greater viability Greater gains from trade

Simulation for Minas Gerais Four trading domains compared: Command and control (no trading) Within municipio Within basin-biome combination Within biome

Biomes and principal basins

Assumptions: properties with ‘ excess ’ forest (>20%) Can sell RL rights corresponding to excess Can also sell RL rights from natural regeneration Regeneration assumed to be vigorous (because seed sources are present) Can deforest down to 20%, but then prohibited from selling RL rights No deforestation in Atlantic Forest biome

Assumptions: forest-deficit properties (<20% forest cover) Comply either through natural regeneration, or through purchase of RL rights Regeneration assumed to be low quality – no seed source, heavily worked land No deforestation permitted

Data Land cover data in ag establishments: census tract level (treated as ‘ virtual properties ’ ) Breakdown: natural forest, natural and planted pasture, annuals, perennials Land value data: municipio level Forest, crops, planted pasture, natural pasture

Deriving supply and demand curves Assume homogenous land values by land cover within municipio Derive step-functions for abandonment of crop or pasture land, reservation of forest land at the census tract level Aggregate over all census tracts

Derived supply and demand -- example

Land Price

Forest cover on agricultural establishments

Forest cover: basin-biome scenario