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Green Finance and Deforestation Reduction in Brazil: a PVAR Analysis of the Amazon Fund

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  • Loris André
  • Julio Ramos-Tallada

Abstract

The Amazon rainforest is emitting more carbon dioxide than it can absorb due to deforestation since 2021, leading to significant impacts on global warming. The loss of biodiversity due to land use change in the Amazon biome is also a major issue. Legal Amazon is an administrative area in Brazil that encompasses 64% of the Amazon biome and nine federal states. The Amazon Fund is the main international climate finance vehicle that operates in Legal Amazon. However, its disbursements have recently dropped due to disagreements between donors and the Brazilian government up to 2022. This paper aims to assess the impact of the Amazon Fund’s projects in reducing deforestation along with other factors, such as the national environmental agency sanctions and agricultural production. Using satellite observations and microeconomic data, a panel dataset has been constructed to analyze the evolution of various environmental features, climate finance, regulation, and production from 2002 to 2020 across 760 municipalities in Legal Amazon. A Panel Vector Auto Regression (PVAR) is used to model a stylized economic system in which variables can affect each other at different lags. Our main findings suggest that the Amazon Fund’s disbursements significantly reduce deforestation rates. Federal-managed projects are more effective than those led by states or municipalities. The most efficient projects are those devoted to land use planning, which involves the development and the protection of local autochthonous communities. Overall, we estimate that the Amazon Fund operates with a low abatement cost (between 0.4 and 1.1 EUR per saved ton of CO2).

Suggested Citation

  • Loris André & Julio Ramos-Tallada, 2025. "Green Finance and Deforestation Reduction in Brazil: a PVAR Analysis of the Amazon Fund," Working papers 998, Banque de France.
    • Handle: RePEc:bfr:banfra:998
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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