Forest Credits to Foster Reforestation in the Brazilian Atlantic Forest

Abstract

The Atlantic Forest is a Brazilian biome that has been heavily impacted by deforestation. To encourage reforestation, Brazilian institutions have regulated to protection of the vegetation located on private properties by introducing the Legal Reserves (LR), areas that land-owners must maintain covered in forest. LR can be established anywhere on a property and their size is 20% of the property area, in the Atlantic Forest. In order to increase compliance, the Brazilian government created the Environmental Reserve Quota (CRA). For land-owners who do not wish to reforest their land, the CRA program allows to comply with the LR requirement by purchasing forest credits (CRA). CRA can be sold by land-owners whose property houses a surplus area of forest. The offsetting can only occur by purchasing CRA issued from the Atlantic Forest. Depending on the way it is implemented, the CRA scheme could be promising regarding compliance and reforestation. CRA price depends on the opportunity cost of the land. As land-owners aim to purchase the cheapest CRA, a larger market entails a more varied option of CRA prices. Instead, in a more restricted market, the land is less heterogenous and thus, the CRA price varies less. Hence, the size of the CRA market plays an important role. The potential of the CRA scheme depends also on the land-owners: as the size of the market determines availability of differently-priced CRA, land-owners influence the CRA price by shaping demand and supply of credits. However, not all land-owners have the possibility to join the CRA scheme, due to factors such as lack of education. In this study, the CRA market is analyzed by implementing an Agent-Based Model (ABM) that simulates the role of the land-owners acting in the CRA scheme. The model will depict the heterogeneity of land-owners’ strategies in the CRA market and portrays the resulting forest cover. Three scenarios where explored: one characterized by a CRA market restricted to the state level; one where the market is national; one, where the market is national and that includes the participation of land-owners previously excluded by the CRA scheme. The results show that the largest forest area is accomplished in the state-level market, where the price of the CRA are also higher compared to the other scenarios. In the national scenarios, most of the forest cover is located in areas of lower opportunity cost, where CRA are cheaper. Between the two national market scenarios, the one that resulted in higher forest cover is the more inclusive.