Actual deforestation reduction efforts or “tropical hot air” : an empirical analysis of the impacts of REDD+ and changes in agricultural commodity prices on deforestation
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- Master Thesis 
Deforestation and forest degradation are important emitters of carbon dioxide. Taking action on reducing emissions from this sector is therefore important in the combat against climate change. To do so, the international community has developed the REDD+ (Reducing Emissions from Deforestation and Forest Degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries) scheme. REDD+ allows developed countries to delegate some of their climate change mitigation obligations to developing countries by financially rewarding developing countries for achieved greenhouse gas emissions reduction from the forest sector. One of the concerns that were raised with the idea of REDD+ is that payments made under the scheme should not reward reduction in deforestation that would have happened without REDD+, also referred to as “tropical hot air”. In this thesis we try to address whether changes in deforestation are explained by REDD+ initiatives or by exogenous factors such as changes in crop prices. Consequently, we are focusing on agricultural commodity prices as a potential cause of tropical hot air. To investigate the effect of crop prices on deforestation we define a fixed effects model that describes the linear relationship between a price index (that incorporates information on the prices of eleven crops) and the deforestation rate. We collect data from 147 countries over a period of 21 years, from 1995 to 2015, to estimate the fixed effects model. The results suggest that a price index decrease of 50 % is associated with a 12 % decrease in the deforestation rate. In a second step we examine the effectiveness of REDD+ initiatives in reducing deforestation. We focus on the REDD+ initiative by the Forest Carbon Partnership Facility (FCPF), which provides support in implementing REDD+ to 47 developing countries. To assess the impact of this initiative on deforestation, we estimate a difference-in-differences model in which we compare countries participating and countries abstaining from participating in the REDD+ initiative, before and after they participate in it or not. The estimated model suggests that the participation in the REDD+ initiative results in a decrease of the average deforestation rate by 37 %. Moreover, the fitted model indicates that, in terms of resulting decrease in the deforestation rate, the participation in this REDD+ initiative is equivalent to a decrease in the price index by almost 90 %. Assessing the effect of several REDD+ initiatives on deforestation simultaneously leads to similar results. These findings suggest that changes in crop prices are a cause of tropical hot air (and that REDD+ could therefore be improved by accounting for exogenous factors like changes in crop prices), but that the effect on deforestation is rather small when compared to the effect of REDD+ initiatives.