Tropical deforestation affects us all: it is responsible for an estimated 10 to 20 percent of the world’s annual greenhouse gas emissions, contributing significantly to climate change. It results in a drier climate and less available water, and dramatically reduces biodiversity.
In the short term, tropical deforestation through logging brings land owners in the global South the income they need to live. In order to halt deforestation, this benefit needs to be met – or preferably exceeded – by payments for conservation.
Because the impacts of deforestation are felt all over the world, it makes sense that these payments come from wealthier countries in the North. So why is this happening to such a limited extent? I wanted to understand deforestation and why the North does not pay the South to conserve. My findings, which I detail in the Journal of Economic Theory, shed light on the reasons and also reveal how the problem could be solved.
Why conservation fails
More than 30 percent of the planet is forest. Research shows that between 2000 and 2012, 2.3 million square kilometers of forest were lost and just 0.8 million gained; that’s an average loss of 125,000 square kilometers a year – the equivalent of 48 football fields every minute. Converting land from forest to agriculture or selling the wood to loggers brings the land owners immediate financial rewards.
Stripping forest doesn’t benefit everyone. According to the World Wildlife Fund, 1.6 billion people rely on the forests directly to live. Deforestation leads to the loss of biodiversity and of indigenous tribes’ homes. Deforestation also affects billions more people around the world indirectly, through its impact on climate change, water and nutrient cycling and food availability. The world’s benefit from conservation far outweighs the costs to the owner, such as the profit they lose by not logging. It would thus make sense for the wealthier North to simply pay the tropical countries in the South to conserve and protect their forests.
Indeed, Northern stakeholders sometimes fund conservation in the South, either by “buying” the land to conserve with a one-off payment or by “leasing” the land through ongoing payments. But this approach is not widespread or at a grand scale.
The explanation may lay in the following fundamental contradiction: the North is willing to pay only if the owner is likely to log, but the owner does not log if it expects the North to pay.
This contradiction implies that in the “game” between the forest owner and a buyer potentially interested in paying for conservation, the forest will not be conserved with certainty. For the North to be willing to pay, there must be some chance that the forest will be logged soon, or gradually at a relatively fast rate. Also, if the North was certain to pay, the South would already conserve now; but as long as the South conserves, the North prefers to delay payment, contradicting the initial presumption.
Of course, the North and the South are not single entities; with multiple individual countries potentially interested in funding conservation, the problem only worsens. Each country simply waits to see if the others will pay first. To spur individual countries to pay in this situation, deforestation must be occurring at an even faster rate.
The importance of commitments and treaties
This research points to the cost of “time inconsistency”: the North wants to give the impression it will pay for conservation in the future in order to give the South an incentive to conserve today. But when that future arrives, the North wants to postpone payments. The solution must be for the North to credibly commit to pay in the future.
If the North committed to paying a sufficiently large compensation – one that is greater than the highest profit the owner could gain by ending conservation – the South would be motivated to conserve already today, since it must conserve now to have any conservation for future sale. Thus, the money need not be paid today, but for conservation to succeed, we must immediately set expectations on a positive trajectory.
Since the problem is one of time inconsistency, it is necessary for the North to tie its hands by pre-committing to pay for conservation in the future. One way to commit is to use third parties, or international treaties, that require countries to contribute to a fund to be used for compensating conservation. The fact that there are multiple countries interested in conservation can in this way be turned into an asset rather than being a liability. These findings suggest that the Paris Agreement on climate, being discussed at COP22 in Marrakech, can motivate immediate conservation by establishing such conservation funds.
Read the study
Elsevier has published this article open access:
Harstad, Bård: “The market for conservation and other hostages,” Journal of Economic Theory (November 2016)
The Journal of Economic Theory publishes original research on economic theory. JET is the leading journal among those specializing in economic theory. It is also one of nine core journals in all of economics. This journal is published by Elsevier.