Terry D. Etherton

It is clear that deforestation of the tropical forests damages the environment and forest communities.  A recent report “Farms Here, Forests There:  Tropical Deforestation and U.S. Competitiveness in Agriculture and Timber” discusses the evidence that ending deforestation will increase income for U.S. farmers.  The Report is an interesting read–below is the Executive Summary.

EXECUTIVE SUMMARY

Destruction of the world’s tropical forests by overseas timber, agriculture, and cattle operations has led to a dramatic expansion in production of commodities that compete directly with U.S. products. About 13 million hectares (32 million acres) of forest are destroyed every year — mostly in the tropics. This deforestation has allowed large-scale low-cost expansion of timber, cattle and agricultural production, and has also caused damage to the environment and forest communities. Much of this timber and agricultural expansion has come through  practices that do not meet U.S. industry standards for sustainability, labor practices, and basic human rights, providing these overseas agricultural operations a competitive advantage over U.S. producers.

The U.S. agriculture and forest products industries stand to benefit financially from conservation of tropical forests through climate policy. Ending deforestation through incentives in United States and international climate action would boost U.S. agricultural revenue by an estimated $190 to $270 billion between 2012 and 2030. This increase includes $141 to $221 billion in direct benefits from increased production of soybeans, beef, timber, palm oil and palm oil substitutes, and an estimated $49 billion savings in the cost of complying with climate regulations due to lower energy and fertilizer costs resulting from the inclusion of relatively low-cost tropical forest offsets. Climate legislation currently under consideration in Congress includes provisions to unlock these benefits for U.S. agriculture through a combination of tropical rainforest offsets and by setting aside allowances for tropical rainforest conservation. Combined with anticipated comparable action by other developed countries, these policies aim to cut tropical deforestation in half by 2020 and eliminate it
entirely by 2030.

This report analyzes the impact of achieving these conservation goals on U.S. production of soybeans, palm oil substitutes, beef, and timber. Eliminating deforestation by 2030 will limit revenues for agricultural expansion and logging in tropical countries, providing a more level playing field for U.S. producers in global commodities markets. We examine potential annual effects of a reduction in deforestation as well as the cumulative effect between 2012 and 2030.

METHODOLOGY

This report is a first step in understanding the potential impacts on U.S. agriculture of deforestation and global forest conservation efforts. We consider the impact of reduced production of these commodities on tropical forest lands and estimate how this reduction would affect the world market, taking into account resulting changes in commodity production on non-forest lands in tropical forest nations, the United States, and other parts of the world.

We begin by estimating the amount of each commodity that is produced on formerly forested land. We consider the impact of a reduction in the forested land available for agricultural and timber production in the tropics, without considering the underlying government policies and measures that would produce this result. This analysis has been structured around available data and therefore methods are specific to each commodity. Assumptions are outlined in the body of the paper.

We use a partial equilibrium model to estimate the impact of this reduction on the world market and the price effects and changes reduced commodity production from deforested land would have for revenue for the U.S. agriculture and timber markets. We use a range of supply and demand elasticities (estimates of the responsiveness of quantity demanded and supplied to changes in price) from existing literature to provide a scope of possible outcomes. In the low revenue scenario, the United States has a limited ability to adjust production in response to market price changes and the rest of the world has a greater ability. In the high revenue scenario, the United States has a greater ability to respond to market price changes and the rest of the world has a more limited ability.

We do not consider cross-elasticities or how the price increase of one commodity could affect the revenues of another. This could be a factor for beef revenues if soybean prices increase and vice versa. These factors (discussed more in Annex B) are important to drawing a fuller picture of what would occur under reduced deforestation scenarios. We aim to provide an initial concept of the scope of the issue as a basis to move forward with a fuller analysis. Given time constraints and the dearth of existing data and analysis on this topic, this report makes the best possible use of the resources available. A fuller analysis would incorporate dynamic economic modeling of price changes, estimates of technological improvements, changes in elasticities over time, more disaggregated and detailed country and regional supply reaction and impacts of supply changes in one commodity on production of other commodities. These are recommended areas for further research.

IMPACT OF OFFSETS

Allowing international forestry offsets in climate legislation also affects U.S. agriculture and forestry. Because these offsets are among the most affordable means of reducing climate  pollution, they would provide significant savings on electricity, fuel, fertilizer, and other input costs for the U.S. agriculture, ranching, and forest products industries. These input costs are major expenses for the industries analyzed in this report — the agriculture sector alone spends about $10 billion just on energy each year. Easing near-term costs of a climate policy allows the sectors to transition more smoothly to carbon-efficient technologies and reduce the overall cost.

Allowing capped entities, including energy producers, to “offset” their emissions by investing in affordable emissions reduction options such as tropical forest conservation will reduce permit prices, therefore keeping energy prices low for farmers, ranchers, and the forest products industry. Tropical forest conservation is among the lowest-cost emissions reduction options available, providing important savings for the agriculture and forest products industries. EPA has estimated that the cost of emissions permits in the House-passed American Clean Energy and Security Act would be 89% more expensive if international offsets (the bulk of which are expected to come from tropical forest conservation) were excluded. Estimates based on EPA’s analysis of the House-passed American Clean Energy and Security Act indicate that the inclusion of international offsets will save the agriculture, forestry, fishing and timber industries about $4.6 billion per year and $89 billion between 2012 and 2030. With tropical forest conservation likely to comprise an estimated 56% of offsets in the years immediately following implementation of climate legislation (though more afterwards), this translates into a cost savings for these industries of approximately $49 billion between 2012 and 2030 (see Section III).