The opportunity cost of preserving the Brazilian Amazon forest

We estimate the trade-off between forest preservation and agricultural production for the Legal Amazon region, using census and deforestation data for municipalities in 2006. We use a directional distance function to represent the production possibility frontier, and then calculate the shadow price of reducing deforestation in terms of agricultural income foregone. Results indicate that, on average, to preserve 1 ha of forest, $797 in annual agricultural GDP must be foregone. Using a discount rate of 10% and average forest carbon density of 132 tons per hectare, these results imply an average shadow price of $16 per ton of CO2 permanently sequestered.