Compensation for Not Clearing is Only Part of the Answer

The economic implications of avoiding deforestation are much broader than indicated by the simple calculation of the direct opportunity costs in terms of the value of agricultural production foregone, which is the methodology employed in most studies of the costs of deforestation avoided. The income generated by development that involves the extraction of timber followed by the building and operating of palm oil mills and operating oil palm estates has a multiplier effect. A proportion of income generated locally is spent locally. There are leakages in saving and spending outside the locality, but the income generated locally would still have a multiplier effect of two or three times. Likewise jobs are created locally which might not be available otherwise. Programs of compensation need not only to include a large number of economic entities, but also to provide production alternatives. The monitoring of these large numbers of agents to ensure that they honor their contracts will incur large transaction costs.

As Karsenty et al. (2008) point out, even if there are incentives in the shape of carbon credits for the conservation of forests, there are still many external factors such as interest rates, currency exchange rates, relative agricultural prices, agricultural policies, and world demands for food and biofuels that will continue to influence forest cover. Moreover there will be political costs borne by governments in adopting conservation policies that create winners and losers (see Box 8.1).

According to Butler and Laurance (2008) the main culprits in tropical forest destruction are now likely to be major corporations engaged in logging, farming, exotic tree plantations and oil and gas development, rather than rural farmers. If this is so, then opportunities as well as serious challenges for conservation interests open up; the targeting of trade groups and corporations that are sensitive to public opinion could be influential in determining the fate of tropical forests.

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