The Price of a Standing Tree

Sunday’s runoff moves the expected price of one thing in Brazil: the cost of clearing a hectare of Amazon forest without consequence. Most commentators treat the ballot as a switch, with one result for the forest and another against it. But supply will respond before any minister takes office, demand will respond regardless of who takes office, and the new equilibrium will not be the one either campaign has promised. It rarely is. The reason lies in the interval between a vote and its enforcement.

The demand side is the simpler half, so I take it first. The forest is cleared because the land beneath it is worth more as pasture, as soy field, or as a gold pit than as forest. Cattle buyers, grain traders and gold dealers create that demand, and almost none of them are on the ballot on Sunday. Whoever wins, the world still wants beef and gold. An election can make clearing more costly. It cannot, by itself, make clearing less rewarding. The curve that pulls on the forest stays where it was when the polls close.

Now the supply side, where the planners’ reckoning usually fails. The “supply” of cleared land comes from people who weigh the gain from clearing against the expected cost of being caught, fined, or having the land seized. Enforcement is the price, and a runoff is a public auction of next year’s price. My central claim follows from this. If the expected price of clearing is about to rise, a careful person does not wait for the rise. He clears now, while the old price holds. The clearing is the asset, and whoever clears first gets to own it.

Consider a hypothetical rancher in Roraima. He is not a villain in a pamphlet. He is a man with a phone on the porch rail, refreshing the count on Sunday night. If the result promises lax oversight, he will clear at leisure next dry season. If it promises strict oversight beginning in the new year, he has the weeks between the result and the inauguration to clear the hectares he would otherwise have cleared over several seasons. Either way the chainsaw runs. The only open question is the schedule. A strict victory may produce a short-run surge in clearing rather than a fall, because both incentives point the same direction during the interregnum: the expected penalty for acting later goes up, and the penalty for acting now has not yet risen. I offer this as an inference from incentives, not a fact about any particular person. One could argue the opposite, that the rancher fears retroactive penalties enough to hold back. That depends, and I mean it precisely, on how credible retroactivity is. Brazil’s past amnesties for earlier clearing have taught landholders that it rarely is.

The strongest case against my argument deserves a full hearing. It holds that long-run equilibrium is what matters, that four years of firm policing lower the expected return to clearing so much that the transitional rush hardly registers. In ordinary markets I would agree. A temporary rush in wheat is offset by later restraint, because wheat grows back. Forest does not grow back on any timescale that interests a voter. A hectare cleared in the interval is a permanent withdrawal from stock, and the communities living in it, including the Indigenous peoples of Roraima whose lands have already been worked over by illegal gold miners, cannot be compensated by better behaviour later on. With an irreversible good, the short run is not a footnote to the long run. It is a deduction from it.

So for Brazilian voters, and for anyone abroad reading coverage such as Tom Phillips’ reporting from the region, the conclusion is not that the election is unimportant. It matters a great deal, but it works through the supply side alone, and only after a delay. A government that wants to protect the forest has to close the interval, which means enforcement ready on the day after the result and not the first day of the new year. It also has to act on demand, so that the gold buyer and the cattle buyer bear a cost for what they buy and not only the man with the chainsaw for what he cuts. Without both of these, the electorate will have changed the price of clearing while leaving its profitability untouched, and a price without a reward to suppress only moves the clearing to a different month.

On Monday morning, whatever the result, someone in Roraima will be oiling a chainsaw. The ballot decides only whether he is in a hurry.