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The Price of Saving a Tree

Latin America is blessed with more than its fair share of wildlife and lush forests. A third of the world’s mammal species and more than a quarter of all known reptiles and bird species can be found there. But this abundance is under threat. Felling seven million hectares of trees each year, South America clears more forests than any other continent. As a result, more than 10,000 species are threatened with extinction – two-thirds of all endangered species on the planet.

In a sense, the solution to this challenge is as plain as day. Landowners cut down trees because it is the most economically beneficial thing for them to do. So policymakers need to provide them with an incentive not to. If we can unlock the hidden potential in Latin America’s forests – without destroying them – then we could provide a solution to the problem of habitat destruction.

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We can easily tally the costs of individual conservation efforts like saving the northern spotted owl. Calculating how much it would cost to stop landowners felling their trees is harder. But that doesn’t mean it hasn’t been attempted. Economists’ estimates range from $1.23 billion a year (to save trees in Latin America’s biodiversity “hot spots”) to $5.8 billion a year (to save 2% of the continent’s land area) to $500 billion (making a one-off payment to save all of Latin America’s forests).

While the economic benefits we get from biodiversity might seem intangible, they are real and quantifiable. One common argument is that governments should protect biodiversity because of its untapped potential for the pharmaceutical industry. A fern deep in the forest could, for example, one day prove helpful in the fight against HIV/AIDS.

This idea became very popular in the 1990’s. A famous project saw Merck Pharmaceutical provide $1 million to Costa Rica in exchange for 1,000 plants collected from its forest. Although the Merck project successfully raised money for Costa Rican biodiversity research, few if any drugs have been developed, and the model has not been transferred elsewhere.

The merits of “bio-prospecting” have been examined carefully, and the returns are in fact very modest, ranging from just $0.20 per hectare in parts of California to $20 in Western Ecuador. Thus, the potential for pharmaceutical development will not provide strong encouragement to private landowners or companies to protect their land.

Another approach for policymakers is to quantify the economic benefits of “ecosystem services” – the miraculous yet mundane things that nature provides like erosion control, water management, and purification. The benefits from ecosystem services in Latin America amount to $11 trillion, according to one prominent economist’s methodology. But, while this implies that the benefits of conservation outstrip the costs by an extraordinary margin, the calculations have been widely criticized.

The real hope lies in the idea of protecting forests for their value in the fight against climate change. Forests contain huge amounts of carbon. With the advent of concern about global warming and the role that carbon and carbon dioxide play, it is possible to estimate the value of a forest for sequestrating carbon. Simply put, by controlling deforestation we can significantly affect the carbon emissions that cause climate change.

Recent market transactions on the European Climate Exchange place the value of carbon somewhere between $10 and $100 per ton. Even if we use what looks like a fairly conservative price of $20, that means Latin America’s trees are worth a whopping $2 trillion. If we count the 70 billion tons of carbon in the dead wood, litter, and soils on the forest floor, the additional value is $1.4 trillion.

Sorting out the benefits is one thing. Next we need to work out how much we’re willing to pay to keep these trees standing. For a landowner, the value of cleared land works out to $300 per hectare on average. So let’s assume that governments will need to pay at least $500 per hectare to stop them from felling their trees. That adds up to $500 billion across all of Latin America. Thus, the benefits are between four and 6.8 times greater than the cost. But the cost will still seem prohibitive to many policy makers.

They may, therefore, like to consider another option: discouraging tree-felling only in those areas that have high recent rates of deforestation. This takes into account the fact that many forest owners have no intention of cutting down trees, so won’t require compensation.

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Using a more realistic approach, and including monitoring and administration costs, the outlay for governments will still be less than half of the economic benefits.

A lot more research needs to be done to establish the true costs and benefits of protecting forest ecosystems and biodiversity. But growing concern about the peril of climate change could help save some of this continent’s lush forests.