Climate Change and Conservation in Brazil: CGE Evaluation of Health and Wealth Impacts

Abstract

Abstract Ecosystem services are public goods that frequently constitute the only source of capital for the poor, who lack political voice. As a result, provision of ecosystem services is sub-optimal and estimation of their values is complicated. We examine how econometric estimation can feed computable general equilibrium (CGE) modeling to estimate health-related ecosystem values. Against a back drop of climate change, we analyze the Brazilian policy to expand National Forests (FLONAS) by 50 million hectares. Because these major environmental changes can generate spillovers in other sectors, we develop and use a CGE model that focuses on land and labor markets. Compared to climate change and deforestation in the baseline, the FLONAS scenario suggests relatively small declines in GDP, output (including agriculture) and other macro indicators. Urban households will experience declines in their welfare because they own most of the capital and land, which allows them to capture most of the deforestation benefits. In contrast, even though rural households have fewer opportunities for subsistence agriculture and face additional competition with other rural agricultural workers for more limited employment, their welfare improves due to health benefits from conservation of nearby forests. The efficiency vs. equity tradeoffs implied by the FLONAS scenario suggests that health-related ecosystem services will be underprovided if the rural poor are politically weaker than the urban rich. In conclusion, we briefly discuss the pros and cons of the CGE strategy for valuing ecosystem-mediated health benefits and evaluating contemporary policies on climate change mitigation.