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This paper estimates the Brazilian Amazon’s carbon-efficient forestation -- i.e. when farmers internalize the social cost of carbon. We propose a dynamic discrete choice model of land use and estimate it using a panel of land use and carbon stock of 5.7 billion pixels between 2008 and 2017. Business-as-usual implies an inefficient release of 44 gigatons of CO2 in the long run resulting from deforestation of an area twice the size of France. We find that relatively small carbon taxes can mitigate a substantial part of inefficient deforestation. We show that targeted mitigation efforts in areas with the largest potential for emission reductions can be very effective. We also find that while taxing cattle production can abate emissions, taxing crops is virtually innocuous
Francisco Costa is an assistant professor of economics at the Alfred Lerner College of Business and Economics at the University of Delaware. He is an environmental and development economist with an interest in current policy issues such as conservation, climate change, and regional development. His main research focuses on understanding the consequences of conservation policies, with a special focus on land use in developing countries and on the Amazon rainforest. He is an Invited Researcher at J-PAL (LAC & K-CAI) and an Affiliated Researcher at FGV EPGE in Rio de Janeiro, Brazil. Prior to joining UD, he was an assistant professor of economics at FGV EPGE. He received his Ph.D. in economics from the London School of Economics and his M.A. and B.A. from FGV EPGE. Webpage: https://sites.google.com/site/fjmcosta/