Commodity prices and robust environmental regulation: Evidence from deforestation in Brazil

Abstract

Increasing international agricultural commodity prices create pressure on tropical forests. We study the effectiveness of three regulatory policies implemented by Brazil in reducing this pressure: blacklisting of municipalities, the Soy Moratorium, and conservation zones. We use a triple difference approach that combines international agricultural commodity prices with the policies across three million km2 in the Brazilian Amazon. We find that the blacklisting program is effective, as it reduces deforestation related to the prices by 40%. The Soy Moratorium made deforestation in exposed municipalities more sensitive to non-soy prices, in line with crop substitution. Conservation zones amplify the effect of prices on deforestation on the remaining unprotected land, consistent with reduced land supply. Our results highlight that the effect of environmental regulation depends on the economic pressure to use natural resources.