The pioneer market for forest law compliance in Paragominas, Eastern Brazilian Amazon

Abstract

This paper explores farmers’ motivations to participate in a market mechanism to come into compliance with the forest laws in Brazil. As of July 2008, farmers with deforestation beyond what is legally permitted can choose between compensating for illegal deforestation at another property or restoring this environmental debt in situ. The study analyzes the first real case of such a compensation market in the Amazonia, started in 2014 in the municipality of Paragominas, Pará. I explore the main features of the Paragominas compensation market in order to understand why farmers with forest deficits would opt for such a mechanism. In particular, the main question explored in this study is: what economic and environmental factors influence the choice to compensate rather than restore in properties with a legal reserve deficit in Paragominas? Results show that an increase in the percentage of illegal deforestation that occurred up to 2008 on a property is associated with an increase in the predicted probability of choosing compensation, when keeping agriculture as a land use, the property size, and the number of land uses in the property unchanged. The study also reveals that farmers with forest deficits may prefer to buy a forest area instead of renting for compensation if they have enough capital to invest.