Hydropower dams, deforestation, and land use change: evidence from Brazil

In Brazil, hydropower generates more than 60% of the national electricity supply, placing the country among the most hydropower-dependent economies worldwide. This study analyses the causal impact of dam construction on forest loss in Brazil using a new municipality-level panel dataset covering 379 dams, combined with high-resolution satellite data on forest coverage, among other variables. Applying modern staggered difference-indifferences estimators and a dynamic event study, we find that dams reduce forest cover by almost 9% percent in the municipality. No anticipatory effects are detected, but postconstruction losses increase steadily over time. Mechanism show that forest loss occurs mainly through cropland expansion, with smaller increases in pasture and higher agricultural value added. Effects are concentrated in the North and North-East regions, amplified in municipalities with high public land shares and unequal land distribution, consistent with persistent institutional legacies. Our results highlight that while hydropower enhances energy security, it entails substantial environmental costs requiring stronger land governance.