Substitution, opportunity costs, trade-offs --however you say it, economic decisions have consequences. Take, for example, the case of biodiesel fuels.
THE drive for "green energy" in the developed world is having the perverse effect of encouraging the destruction of tropical rainforests. From the orang-utan reserves of Borneo to the Brazilian Amazon, virgin forest is being razed to grow palm oil and soybeans to fuel cars and power stations in Europe and North America. And surging prices are likely to accelerate the destruction.
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Rising demand for green energy has led to a surge in the international price of palm oil, with potentially damaging consequences. "The expansion of palm oil production is one of the leading causes of rainforest destruction in south-east Asia. It is one of the most environmentally damaging commodities on the planet," says Simon Counsell, director of the UK-based Rainforest Foundation. "Once again it appears we are trying to solve our environmental problems by dumping them in developing countries, where they have devastating effects on local people."
Increasing demand for an output (biodiesel) increases the demand for intermediate inputs by suppliers (palm oil, soy beans) which increases the demand for raw materials (land). How do we solve it? One solution might be to tax the production of soy and palm on forested lands. But that would put a bigger burden on local communities. Another solution? Create incentives for the production of alternative crops that requires less deforestation and potentially decrease the sensitivity of local incomes to fluctuations in crop prices. Such incentives would depend on the types of crops that can be grown in each area, but a recent discussion paper out of Resources for the Future shows that such programs seem to be working for shade-grown coffee in Mexico [1]. Here's the abstract:
More than three-quarters of Mexico’s coffee is grown on small plots shaded by the existing forest. Because they preserve forest cover, shade coffee farms provide vital ecological services including harboring biodiversity and preventing soil erosion. Unfortunately, tree cover in Mexico’s shade coffee areas is increasingly being cleared to make way for subsistence agriculture, a direct result of the unprecedented decline of international coffee prices over the past decade. This paper summarizes the key findings of a three-year study of deforestation in Oaxaca, one of Mexico’s prime regions for growing shade coffee. First, we find that deforestation during the 1990s was significant. Second, the loss of tree cover can likely be slowed by promoting coffee-marketing cooperatives and “green” certification, providing coffee price supports, and specifically targeting areas populated by small, indigenous farmers for assistance. Finally, to be effective, such policies must be implemented quickly after price shocks occur.
[1] Deforestation and Shade Coffee in Oaxaca, Mexico, Allen Blackman, Heidi J. Albers, Beatriz Ávalos-Sartorio, and Lisa C. Crooks, Resources for the Future, Discussion Paper.
