Course:ECON371/UBCO2010WT1/GROUP5/Article 5

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Summary

The World Wildlife Fund (WWF) released in 2007 a report at the Bali Climate Conference a report that predicted great damages done to the Amazon, product of climate change. It grimly foresees as much as 60 percent of the forest cover vanishing by 2030, and the release of around 55.5 to 96.9 billion tonnes of CO2. The destruction of such a large cover of trees would be harmful for the equilibrium of climatic patterns, and according to one of the authors of the report, Dan Nepstad of the Woods Hole Research Centre in Massachusetts, could be detrimental to freshwater supply and temperature cooling. The report details that agricultural practises and livestock expansion, fires and logging, and other human-induced factors are liable to destroy 55% of the forest cover in the Amazon by 2030. Compounded with a decline in rainfall–estimated at around -10%– nearly 60% of the Amazon would be in jeopardy.The levels of Carbon emission from the Amazon rainforest were around 0.2 to 0.3 billion tonnes per year. During drought-fire season, the rates easily double. With a decreased forest cover by an index of 60%, the figure skyrockets off the chart. The head of forests at the WWF in the UK, Beatrix Richards, stated that developed nations have a duty to throw a lifeline to forests around the world. It is important, she adds, that such nations help create a strategy to reduce emissions and help break the cycle of deforestation.

Photograph © 2003, Greenpeace/Daniel Beltrá

Analysis

This article portrays a problem where nobody in particular is liable for the damages being done or the future of the Amazon rainforest. Each individual adding to the destruction of the forest seems to be looking at their personal gain and not viewing or taking responsibility for the negative externalities occurring. The amazon at this point resembles an open access resource; at present there is somewhat uncontrolled access. Therefore no one has the desire to protect its resources as they reap no particular benefits from doing it. To keep things fresh and in perspective, here's the usual graph we employ in making the comparison:

A cost-benefit analysis done in a single period will obviously suggest that the costs of cutting back production– needed to decrease deforestation- far outweigh the perceived benefits of doing so. However, in an intertemporal approach it is quite clear that the costs would not decrease, and the production function would suffer as a result of decreased capital stock: scientific findings and projections estimate massive releases of CO2 into the atmosphere at current production levels, which would in turn decrease the yield of the production function at current inputs. An intertemporal model for maximising benefit, given our resource constraint (financial capital, infrastructure, and the forest which is renewable to a certain extent, subject to constant depreciation) would indicate that for the planet to keep on producing at current levels and generating so much pollution (captured in the model perhaps as a drastic decrease in capital and resources as periods advance) we must be discounting the future at a very high rate, each period probably even higher. The cost-benefit analysis would yield that, aggregated over infinite periods, the costs are far too great than the benefits we incur, in order to justify production (unless we truly do discount the future that much.) Taking the world as a big closed economy, the cost-benefit analysis can be analysed in a pretty straightforward fashion: current production levels will incur extremely high costs later on, far outweighing the benefits garnered in the present period, if the scientific findings are to be believed.

Protected areas and de-centralised approaches would show promise here, such as liability laws or property rights. Taking Liability laws as a possible solution, those creating the pollution will be held liable for producing it, they will ultimately have to compensate those being damaged by what they are causing. This is supposed to then encourage those who are polluting to internalize the otherwise would be ignored external effects and encourage them to seek an equilibrium in order to avoid the extra costs of compensation.

Looking back at the figure above, when no liability laws exist, the polluter will not willingly incur any abatement costs and will discharge the maximum at Eo, which is probably some production level close to reality. However, with liability provides the incentive for the polluter to reduce its emissions to E* (the socially efficient equilibrium).

The article is also suggesting that there is not enough aid from the global stage in order to protect the rainforest effectively. However, in such circumstances, when the problems and consequences are only being estimated, those who aren’t being directly affected have no desire to help and those who are have no power to change it. The developed countries outside the region of the Amazon have as of yet felt very little negative externalities, thus are unmotivated to contribute time and money to finding a strategy. But if the findings of the report are to be believed, a 60% decrease in the Amazon forest cover will feel very much real to their respective economies.

Conclusion

It is clear that we as a society are not polluting at the efficient levels, for the costs keep skyrocketing and the benefits decrease. If the findings are to be believed, or some measure of them rings true, then it is important to address the issue with some urgency, ere the damage becomes unavoidable and the billions of tonnes of greenhouse gasses flock the atmosphere- to the detriment of all. De-centralised approaches would show some promise, if they can be enforced. Nations such as the US would do well in showing some initiative to abate the damages and motion towards breaking the "let's-log-'er-clean" cycle the Amazon finds itself subject to, especially when the findings can be inferred to suggest a negative cost-benefit analysis yield at current production levels.

Prof's Comments

Your suggestion that liability laws are a solution here needs to be explored more deeply. Recall that liability works through the courts. What court has jurisdiction to enforce a ruling, when the impacts occur outside of a country? Other incentive based approached are probably more cost effective than liability rules.