Environmental Economics



In 1960 central America had 80% of its original forest area and today only 40% of these forest remain, in brazil has lost over 90% of it forest located along the Atlantic coast and the forests in developing countries have not been spared either where Nigeria has lost 80% of its forest area from the year 1990 to 2005. in the year 1990 to 2005 the world has lost over 3% of its total area that is covered by forests, however according to the 2007 FAO report the net loss of forest is estimated at 7.3 million hectares every year and this amounts to 20,000 hectares a day.

This shows that Over the years the area covered by forest has declined drastically due to deforestation, forest serve an important purpose in the welfare of the environment in that they are home for wild life, water shed management, source of timber and paper, source of fuel, biodiversity such as fruits and plant species and recreational purposes.

In the recent past there has been an increased concern over the rate of deforestation and policy measures have been implemented to protect the remaining covered area. Human activity is one of the major factors that have contributed to this problem and because trees are renewable resources there is need to take action and improve the current situation.


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Causes of deforestation:

Human activity:

Trees from the forests are used for economic purposes such the production of timber and paper, this increased demand for timber and paper has led to the increased deforestation all over the world. Human activity is one of the major cause of deforestation, in developing countries deforestation is undertaken in order to gain agricultural land, these activities are undertaken in order to provide land for the growing population because population growth in these countries is usually very high and therefore the ever increased demand for land.

In developed countries however deforestation takes place for the purpose of development, due to increased value of and also increased demand for land for commercial use the area covered by forests is cleared to give way to development.

Pests and diseases:


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Due to increased occurrences of pests and diseases that destroy the forests there has also been a decline in the area covered by forests, some diseases affect large portions of forests and as a result forest land is lost and this leads to increased deforestation. When forests are affected by these diseases and pests the only option undertaken is to clear these forests and use them for commercial purposes such as building, airports, parks and other economic purposes.


Fire has also been a contributing factor in the reduction of forests covered areas, in the recent past there has been increased frequency in the occurrence of forest fires that have led to the diminishing of forests, forest fires are in most cases difficult to extinguish and control due to the unpredictable intensity and direction of wind and also lack of proper equipment to detect fires. Therefore fire is also considered as a contributing factor in deforestation problem.

The Greek fire in 2007 is one of an example of forest fires that have led to deforestation, this fire destroyed 2,700 kilometres squared of area covered by forest, this fire also destroyed buildings and also at the same time people were burnt to death by the blazes. Another case is the California forest fires in the year 2007 where over 2,000 square kilometres covered by forests were destroyed. This shows that forests fires are also a contributing factor in the problem of deforestation.


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In some cases wind has also been a factor that has led to deforestation, wind will forse trees to bend and also break and as a result although this may be viewed as a minor factor in the long run wind contributes to deforestation.

Acid rain:

Acid rain has also resulted to the loss of forests, acid rain is caused by the increase pollution by industries and human activity and due to soil degradation the area covered by forests have reduced and therefore acid rain has also contributed to the loss of trees in forests.

Urban development:


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Forests in most cases are cleared for the purpose of expanding area for urban development; this has led to extensive logging and clearing of forest. As urban areas expand there is an increased need to clear forests to give way to development of buildings and other transport networks and as a result forest area has declined.

Transport network:

The construction of roads and railway lines and also airports have also resulted into the loss of forest area, as a result of the needed extension in transport networks most roads and railway lines pass through original forests and trees have to cleared to give way to development of these networks, as a result there has been deforestation.

Rise in population:


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According to the Malthusian scenario of population growth, population growth is geometric in nature and as the population size increases there is an increased for resources such as land, as a result the population will clear forests in order to gain access to land for economic purposes.

Mining and exploration:

Mining and exploration have also contributed to this problem, when certain minerals such as metal or oil is discovered in area covered by forest man will clear these forest in order to extract these valuable resources and as a result forests area decreases as more and more minerals are discovered and there is need to clear trees.

Impact of deforestation:

Loss of biodiversity:

Forests have resulted into the loss of biodiversity, some tree and plant species are currently endangered and some are already extinct and this has been as a result of deforestation. As a result the world has lost its biodiversity including animals that have lost their habitat.


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Flash flooding:

Forests are important as they provide watershed management, as a result of deforestation there has been an increase in the flow of ground water and as a result there have been increased occurrences of flash flooding in dams and electric power dams.

Global climatic changes:

Climatic changes are experienced due to the unforgiving nature of the environment, Global warming has been an issue that has been of recent concern and deforestation has contributed to the issue of global warming, for this reason therefore there should be improved forest management to extend the adverse effect of global warming.


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Trees will act as water shed whereby areas covered by forest will hold more underground water, when logging takes place in these area the ground may not hold water and for this reason the area may experience more drier climates due to deforestation.

Increased erosion and land slides:

Due to the increased loss of vegetation cover land has become more susceptible to erosion through rain and also wind, the loss of vegetation cover and forests have also resulted into increased occurrences of land slides. An example of erosion caused by logging is the yellow river of China that turned yellow due to the increased sediment load of the river as a result of erosion.

Carbon cycle:

Forests are important in the carbon cycle balance and the cutting down of trees will result into unbalanced carbon cycle in the word, as a result there will be an increased percentage of carbon dioxide in the atmosphere which results into global warming and other impacts.

Deforestation is also a major causes of the greenhouse effect, Trees remove carbon from the atmosphere through photosynthesis and when these tree reduce then this will create an imbalance, the decay and the burning of trees will also lead to an increase in the level of carbon in the atmosphere and for this reason


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Policy measures:

Afforestation and reforestation:

Government have initiated policy measures aimed at planting trees in both areas that were covered by trees and those that were not earlier covered by trees, afforestation involves the planting of trees in area where forests did not exist while reforestation involves planting trees where forests have been destroyed. An example is where since 1990 the European union has paid farmers in form of grants for them to turn their farming land into forests, by 1997 over half a million hectares of land have been afforested and reforested. Also In the 1998 to 2000 period china completed reforestation and afforestation of over 1.1million hectares. Therefore the afforestation and reforestation policy measures by various authorities have resulted into a reduction in the effects of deforestation.

Ban on logging:

Bans on logging are also policy measures to reduce deforestation, this however acts as a way to stop further deforestation but does not solve the problem of deforestation because the world has already been faced with the problem, an example of such a ban is the 1998 china ban against commercial logging, this ban was lifted on more than 13 provinces that are along the yellow river.


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Cost of reducing this problem:

Because timber harvesting is a major economic activity in many countries if a piece of and is used for production of timber and not for nay other use, trees are planted and then cut for timber production and trees are replanted or allowed to grow from natural seeding then we would be in apposition to find out the economic cost of resolving the problem. If trees and forests are used for timber production then there must the determination of optima rotation which will be determined by the cost of planting, price of cutting timber, discounting rate and the pattern of growth of these trees.

The stumpage value of the trees will be equal to revenue got from the sale of timber minus the cost of harvest and transport to the place of sale. In this case therefore it would be important to maximise the stumpage value.

In our case we are determining growth of trees not for the purpose of cutting down but to secure and maintain the eco balance and therefore the cost of keeping trees will be determined by the management costs such as spraying, pruning and thinning, other cost include the opportunity cost of land tied up by the trees and finally the opportunity costs which the proceeds from cutting the trees. However for public forests we do not have to consider the opportunity cost of land held up by the trees.

Results of the undertaken policy measures:

The costs of reforestation and afforestation has been very high in most countries, in Brazil especially the Amazon the economy generates over 2.3 billion US dollars each year from logging and non logging activities, further the activities provide over 230,000 direct and indirect


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employment. This shows the extent of the cost that would result from total ban on forest activities by closing this forest.

Therefore these policies will lead to the reduction in employment opportunities and also a reduction in economic gains. Trees being a natural resource can be used for the purpose of economic growth and improvement of the economy and failing to utilise these resources will result to unsustainable economic growth.

However the increasing area of forest covered as a result of these policies will reduce the effects of deforestation over time, the country will also experience an increase in the natural resources available and there will be an improvement in climatic conditions in the area.

Role for market based control policies:

The market control policies involve such policies as high economic fines on anyone found logging, higher taxes on logging companies and firms will also discourage the demand for timber and tree products, when the price of timber increases the demand also declines and therefore there will be a decline in the rate of deforestation, the other market based policy involves subsidising and also offering grants to farmers to plant trees, this will encourage tree planting practices in an economy and therefore reduce the problem of deforestation.


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Discount rate:

The discount rate expresses the future costs or benefits equivalent to today’s usage of resources, the discount rate depend on whether current resources net benefits are found to be negative or positive, because deforestation benefits are positive the discount rate should therefore be a positive figure. The best interest rates that should be used to discount for the deforestation problem should be the existing market interest rates, this is because the market interest rates reflect the willingness of individuals in the economy are willing to pay for consumption of resource in the future this is also because the market interest rate reflect the social preference of individuals in the economy.


From the above discussion it is evident that deforestation has caused adverse effects on the environment, the increased economic incentive and demand for timber and tree products has contributed to the increased deforestation acts all over the world. Deforestation is caused mainly by human activity, forest fires, pests and diseases, wind, acid rain caused by pollution, urban development, the need to diversify the transport networks, mining and exploration and finally population growth.

Impacts of deforestation on the environment include loss of biodiversity, flash flooding and global climatic changes which is as a result of global warming and greenhouse effect. Policy measures to protect forests that have been undertaken include afforestation, reforestation and the ban on logging. Market based policy measures include taxes on logging firms that reduces the demand for timber and tree products, when the price of timber increases as a result of these tax then the demand declines, the other market based policy involves subsidising and offering


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grants to farmers to plant trees, this will encourage tree planting practices in an economy and therefore reduce the problem of deforestation.


Gallant R (1990) Earth’s Vanishing Forests, Macmillan Publishers, London

Michael K, Gregory P, and Johan Z (2007) Timber production logged tropical forests South America, Environment journal 5(4) 213 to 216

Westoby J (1990) Introduction to Forestry, Blackwell publishers, New York

Williams M. (2003) Deforesting the Earth, University of Chicago, Chicago

Wikipedia the free encyclopaedia (2008) deforestation, retrieved on 11th march, available at htt p://en.wikipedia.org/wiki/Deforestation

Wunder S. (2000) the Economics of Deforestation, Macmillan Publishers, London

Zuckerman S (1991) Saving Ancient Forests, living planet press, Los Angeles


Environmental Economics