ADP Report 052410a
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Shari FriedmanDavid Gardiner & Associates
Farms Here, Forests tHereTropical Deorestation and U.S.Competitiveness in Agriculture and Timber
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acknowledgements
We greatly appreciate the support o the National Farmers Union and Avoided Deorestation Partners or thisreport. We are particularly grateul to NFU president Roger Johnson and Jeremy Peters or their thoughtulengagement, and ADPs Founding Partner Je Horowitz and Washington Director Glenn Hurowitz ortheir contributions.
Many dierent people helped make this report possible. Jonah Busch, Ph.D. o Conservation International andRuben Lubowski, Ph.D. o the Environmental Deense Fund provided invaluable assistance in the developmento the economic models used in the report. Erin Myers Madeira and Andrew Stevenson o Climate Advisers andResources or the Future gave extensive and important analytic input. Te Union o Concerned Scientists providedthe resources o its ropical Forest and Climate Initiative to assist in development and review o the report.
Particular thanks go to Douglas Boucher, Ph.D. and Pipa Elias who provided guidance on integration o theirown and other groundbreaking research.
We are also grateul to the many expert reviewers who provided detailed comments and eedback, includingGlenn Bush, Ph.D. o the Woods Hole Research Center, Proessor Bruce Babcock at the Center or Agricultural
and Rural Development o Iowa State University, Barbara Bramble o the National Wildlie Federation, SaraBrodnax o Te Clark Group, oby Janson-Smith o Conservation International, Proessor Brian Murray oDuke Universitys Nicholas Institute, Alexia Kelly o the World Resources Institute, Sasha Lyutse o the NaturalResources Deense Council, Anne Pence o Covington and Burling, Annie Petsonk o the Environmental DeenseFund, Nigel Purvis o Climate Advisers, Naomi Swickard o the Voluntary Carbon Standard, Michael Wolosin o
Te Nature Conservancy and several others.
Carley Corda and her team at Glover Park Group designed the report, and special thanks go to ErikHardenbergh, Ryan Cunningham, and Grant Leslie or their help. Olivier Jarda and Caitlin Werrell providedresearch support, and Rachel Arends reviewed the design.
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about tHe autHor
David Gardiner & Associates prepared the paper on behal o Avoided Deorestation Partners and the NationalFarmers Union. Shari Friedman, Senior Advisor to DGA, served as lead author.
David Gardiner & Associates helps industry, nonprots and oundations solve energy and climate challenges.DGA has expertise in climate and energy policy and regulation, as well as tools and strategies or businesses toreduce emissions, lower costs and create advantages within existing or potential policies. DGA also works withoundations and NGOs to develop and pursue strategies that advance their climate and energy goals.
Shari Friedman is the President o ASF Associates and Senior Advisor to David Gardiner & Associates. ASFAssociates ocuses on climate change policy and private sector strategies. Ms. Friedman has 14 years o experience
in climate change, including policy development, international negotiations and greenhouse gas markets. She hasexperience in both the ederal government and the private sector. From 1995 to 2001, Ms. Friedman worked onclimate change at EPA, analyzing domestic climate change policies and international competitiveness. From 1998to 2001, Ms. Friedman was part o the U.S. negotiating team or the Kyoto Protocol, ocusing on rules or project-level trading, particularly the Clean Development Mechanism.
In 2001, Ms. Friedman joined Environmental Enterprises Assistance Fund (EEAF), which managed privateequity unds or environmental businesses. Ms. Friedman let EEAF to create Opus4, now ASF Associates. Ms.Friedman has a Masters degree in Public Policy rom Georgetown University and a B.A. rom uts University.
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contents
exiv sy 1
I b 6
II ciy ch ei Ip us m 14
sy 14
V oi 18
bf 21
ti 24
III Fii Ip f tpi F off 28
IV ci 29
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eXecutIVe summarY
Destruction o the worlds tropical orests by overseastimber, agriculture, and cattle operations has led to adramatic expansion in production o commodities thatcompete directly with U.S. products. About 13 million
hectares (32 million acres) o orest are destroyedevery year mostly in the tropics.1 Tis deorestationhas allowed large-scale low-cost expansion o timber,cattle and agricultural production, and has also causeddamage to the environment and orest communities.Much o this timber and agricultural expansion has
come through practices that do not meet U.S. industrystandards or sustainability, labor practices, and basichuman rights, providing these overseas agriculturaloperations a competitive advantage over U.S. producers.
Te U.S. agriculture and orest products industriesstand to benet nancially rom conservation otropical orests through climate policy. Endingdeorestation through incentives in United Statesand international climate action would boost U.S.agricultural revenue by an estimated $190 to $270
billion between 2012 and 2030. Tis increase includes$141 to $221 billion in direct benets rom increasedproduction o soybeans, bee, timber, palm oil and palmoil substitutes, and an estimated $49 billion* savingsin the cost o complying with climate regulations due
to lower energy and ertilizer costs resulting rom theinclusion o relatively low-cost tropical orest osets.Climate legislation currently under considerationin Congress includes provisions to unlock thesebenets or U.S. agriculture through a combination
o tropical rainorest osets and by setting asideallowances or tropical rainorest conservation.Combined with anticipated comparable action byother developed countries, these policies aim to cuttropical deorestation in hal by 2020 and eliminate it
entirely by 2030.
Tis report analyzes the impact o achieving theseconservation goals on U.S. production o soybeans,
palm oil substitutes, bee, and timber. Eliminatingdeorestation by 2030 will limit revenues oragricultural expansion and logging in tropical countries,
* Analysis o the cost o compliance with climate regulation was done by Climate Advisers. See Section III or more details. Tese benchmarks are chosen based on global targets or reduced deorestation.
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providing a more level playing eld or U.S. producersin global commodities markets. We examine potentialannual eects o a reduction in deorestation as well asthe cumulative eect between 2012 and 2030.
mhy
Tis report is a rst step in understanding the potential
impacts on U.S. agriculture o deorestation and globalorest conservation eorts. We consider the impact oreduced production o these commodities on tropicalorest lands and estimate how this reduction wouldaect the world market, taking into account resulting
changes in commodity production on non-orest landsin tropical orest nations, the United States, and other
parts o the world.
We begin by estimating the amount o eachcommodity that is produced on ormerly orested
land. We consider the impact o a reduction in theorested land available or agricultural and timberproduction in the tropics, without considering theunderlying government policies and measures that
would produce this result. Tis analysis has been
structured around available data and thereore methodsare specic to each commodity. Assumptions are
outlined in the body o the paper.
We use a partial equilibrium model to estimate theimpact o this reduction on the world market andthe price eects and changes reduced commodityproduction rom deorested land would have or
revenue or the U.S. agriculture and timber markets. Weuse a range o supply and demand elasticities (estimateso the responsiveness o quantity demanded andsupplied to changes in price) rom existing literatureto provide a scope o possible outcomes. In the low
revenue scenario, the United States has a limitedability to adjust production in response to market pricechanges and the rest o the world has a greater ability.In the high revenue scenario, the United States has agreater ability to respond to market price changes and
the rest o the world has a more limited ability.
We do not consider cross-elasticities or how the priceincrease o one commodity could aect the revenueso another. Tis could be a actor or bee revenues isoybean prices increase and vice versa. Tese actors
(discussed more in Annex B) are important to drawinga uller picture o what would occur under reduceddeorestation scenarios. We aim to provide an initialconcept o the scope o the issue as a basis to moveorward with a uller analysis. Given time constraints
and the dearth o existing data and analysis on this
topic, this report makes the best possible use o theresources available. A uller analysis would incorporatedynamic economic modeling o price changes,estimates o technological improvements, changes in
elasticities over time, more disaggregated and detailedcountry and regional supply reaction and impacts osupply changes in one commodity on production oother commodities. Tese are recommended areas orurther research.
Ip f off
Allowing international orestry osets in climate
legislation also aects U.S. agriculture and orestry.Because these osets are among the most aordablemeans o reducing climate pollution, they wouldprovide signicant savings on electricity, uel, ertilizer,and other input costs or the U.S. agriculture, ranching,
Cumulative Revenue Increase
to U.S. Agriculture and TImber Producers
from Ending Deforestation, 2012 2030
Commodity 2008 U.S. $ Billion
Soybeans $34.2 $53.4
Palm Oil and
Palm Oil
Substitutes (1)
$17.8 $39.9
Beef $52.7 $67.9
Timber $36.2 $60.0
Total
Cumulative$141.0 $221.3
(1) Includes crops or soybean oil, cottonseed oil, sunfower oil and
canola oil
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and orest products industries. Tese input costs aremajor expenses or the industries analyzed in thisreport the agriculture sector alone spends about$10 billion just on energy each year.2 Easing near-termcosts o a climate policy allows the sectors to transitionmore smoothly to carbon-ecient technologies and
reduce the overall cost.
Allowing capped entities, including energy producers,to oset their emissions by investing in aordableemissions reduction options such as tropical orest
conservation will reduce permit prices, thereorekeeping energy prices low or armers, ranchers,and the orest products industry. ropical orestconservation is among the lowest-cost emissionsreduction options available, providing importantsavings or the agriculture and orest products
industries. EPA has estimated that the cost oemissions permits in the House-passed AmericanClean Energy and Security Act would be 89%more expensive i international osets (the bulk o
which are expected to come rom tropical orest
conservation) were excluded.3 Estimates based on
EPAs analysis o the House-passed American CleanEnergy and Security Act indicate that the inclusion ointernational osets will save the agriculture, orestry,shing and timber industries about $4.6 billion per
year and $89 billion between 2012 and 2030.4 Withtropical orest conservation likely to comprise an
estimated 56% o osets in the years immediatelyollowing implementation o climate legislation(though more aterwards), this translates into a costsavings or these industries o approximately $49billion between 2012 and 20305 (see Section III).
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his paper ocuses on the economic impacts odeorestation and orest conservation
on the U.S. agriculture and timber industries.But what about the impact on people in the rainorestnations themselves?
Right now, many people in rainorest nations acea terrible choice. In the absence o incentives or
their protection, orests are worth more dead thanalive. A company or peasant is orced to weigh the
very immediate nancial proceeds o cutting downa orest or timber, agriculture, or ranching againstthe damage wrought by deorestation to their own
communities, wildlie, water and the planet aswell as the lost potential uture nancial value o theland as a carbon sink. Even i clearing and burning ahectare o rainorest only produces ranchland worth$200 per hectare, many people make the choice to
cut it down anyway because that deorestationcan, at least in the short run, put ood on the tableor boost earnings or a quarterly report to investors.But that decision comes at a terrible long-termeconomic price. Based on recent prices in European
carbon markets, the value o a hectare o rainorest
as a carbon sink is approximately $10,000 a hectare.Releasing that carbon into the atmosphere byclearing or burning the orest means sacricing theopportunity to realize that value. As a recent WorldBank report put it, Farmers are destroying a $10,000
asset to create one worth $200. *
So how will providing nancial incentives or the
conservation o orests aect those who are protingrom deorestation? In most cases, the people cuttingdown the orests have the most to gain rom conserving
orests. Because incentives to end deorestation areestablished to, in part, compensate those who lose
money by bypassing an opportunity to deorest,the armers, loggers, and landowners themselvestend to have the most to gain. Tey will be the onescompensated they can gain income ar exceeding
sIdebar: th Ip f dfi Pp i rif ni
any prots rom deorestation, and enjoy enormousbenets to their local communities and environments.
For instance, in Brazil, many o the ranchers andarmers most responsible or deorestation havebecome advocates o orest conservation programs.Pilot projects and an increasing recognition o thehigh costs o deorestation have convinced many
that they and their communities will become richer and also enjoy a better quality o lie throughconserving orests rather than cutting them down.Perhaps the most prominent embodiment o these newconservationists is Blairo Maggi, Brazils King o Soy
the countrys biggest private landowner, personallyresponsible or tens o thousands o acres o orestdestruction, and governor o Mato Grosso province,ground zero or deorestation. Maggi made his namethroughout the world as an enemy o conservationists
and a vocal ideological deender o deorestation as thepath to riches or himsel and the citizens o his state.
Maggi has changed, however. He has recently urgedadoption o policies to conserve the orest ithe state can nd developed country governments
or private companies who will nance orestconservation, most likely as part o a mandatorycarbon reduction system. Forest conservationincentives will be much, much more protable thansoybeans, he told Forbes Magazine.
In addition, even a small carbon incentive can do alot to bring production in rainorest nations up to
the environmental and social standards o the UnitedStates and other developed countries.
Protecting orests will also create much needed,well-paying jobs in developing countries. Forest
conservation requires people: park rangers to patrolthe orest, oresters to measure carbon storage, andeven satellite manuacturers and operators to providedeorestation monitoring. Reorestation activities
* Chomitz, Kenneth. At Loggerheads? Washington, DC: Te World Bank, 2007. Perlroth, Nicole. ree Hugger. Forbes Asia Magazine. December 14, 2009. http://www.orbes.com/global/2009/1214/issues-blairo-maggi-
jungle-conservation-tree-hugger.html
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that oten accompany orest conservation can provideadditional employment opportunities.
Protecting existing orests will also provide a moresustainable source o jobs in extractive industriesthemselves. In places without conservation incentives,orests are routinely stripped o all their value andthe ground is let as a barren desert that cant support
communities or jobs. For this reason, many producers intropical countries have advocatedestablishing carbon incentives that
would rapidly shit production tomore sustainable sources.
In Indonesia, or example, clearcutting has drastically reducedthe availability o trees toprovide employment in orestry,including logging. According to
the Indonesian orestry union,Kahutindo, employment inorest products has declined bymore than 50 percent in the pastdecade, rom 2 million workers to
ewer than 1 million today. As aresult, Kahutindo now advocatesconserving existing rainorestsand relying solely on reorestation
to produce ber. **
Tere is evidence that thisstrategy will work globally
to create well-paying jobs inthe orestry sector. Te latestU.N. Food and Agriculture
Organization State o the Forestsreport estimated that switching
to sustainable orest managementwould create 10 million goodjobs globally, which wouldcreate a major orce against rural
unemployment, underemployment and poverty.Benets in the agricultural and ranching sectors are
likely to be signicantly greater, given the greatereconomic values. Providing nancial incentives ororest preservation will allow a wide array o people,
rom peasants to landowners, to preserve the orestswe all need to ght climate change.
Glenn Hurowitz
** Foster, David. Indonesias Forestry Workers Another Endangered Species. December 11, 2007. http://blog.afcio.org/2007/12/11/indonesias-orestry-workersanother-endangered-species/
Food and Agriculture Organization o the United Nations. Forests and the global economy March 10, 2009. http://www.ao.org/news/story/en/item/10442/icode/
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I background
ropical rainorests store an immense amount ocarbon. Clearing and burning these orests releasesthis carbon into the atmosphere in the orm ocarbon dioxide. An estimated 15% or more o
total global carbon dioxide emissions comes romtropical deorestation.6 Indonesia and Brazil, orexample, rank as the third and our largest emitters,respectively, almost entirely due to deorestation.7
Despite the immense amounts o carbon stored in
tropical orests deorestation releases an averageo about 500 tons o carbon dioxide per hectare incentives or their conservation were excluded romthe Kyoto Protocol and most other major climatepolicies. Without these conservation incentives,
deorestation continues to occur at a rapid rate, mucho it due to logging and conversion o orestland toagricultural uses.
Deorestation occurs mainly because other land usesin many cases generate greater immediate nancial
returns than retaining the land as orest.8 Alternateuses putting pressure on orests include croplands,pastures and plantations.9 oday, an acre o naturaltropical orest holds potential monetary value rom
the extracted wood and subsequent commoditiesgrown or raised on the land, but holds little nancialpotential as a natural orest.
Although subsistence activities have dominatedagricultural-driven tropical deorestation, large-scale
commercial activities are playing an increasinglysignicant role, particularly in the Amazon, Indonesiaand Malaysia.10 Globally, oreign commercialagriculture and timber production have become theleading cause o deorestation. Without policiesthat create value or the environmental services that
orests provide, tropical orests are oten worth moremoney dead than alive. Foreign agricultural, loggingand ranching operations are able to take advantage ocheap land supply and undercut U.S. producers on the
world market.
Te main agriculturalcommodities that drivetropical deorestation todayinclude soybeans, palm
oil and cattle. Soybeancultivation and cattle aredrivers o deorestationin Brazil and soy alsocontributes to deorestationin Argentina. Palm oil is a
major cause o deorestationin Indonesia and Malaysia.11
Te expansion o pastureand plantation to previouslyorested land in nations
such as Brazil, Argentina,Indonesia and Malaysia
has contributed to thesecountries becoming leadproducers and exporters othese commodities.
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I the orests are conserved, the land will not beconverted to pasture or plantation. While someproduction will be shited to other land in the countryor yield per acre may increase more than it would have
without pressure rom land restrictions, we can expectto see reduced production rom these countries as a
result o restricted land and higher production costs.*In addition, orests will remain intact, reducing theinfux o timber products into the international market.
Te degree to which each country would be able to
intensiy production in response to the restrictedsupply o cheap agricultural land rom orestedareas would depend on each countrys land base andeconomic conditions that determine how much itis likely to expand cropland and yields on existing
agricultural land or on other available non-orest land.Te ability o one country to capture market share is aunction o its own supply possibilities as well as thoseo other countries. Further, a restriction in supply willlikely have price impacts that then aect demand levelsand also production choices.
Te interaction among crops and also between crops,pastureland, plantations and intact orests is dependenton many variables, including the prices o each
commodity whether a crop, timber or the value oa standing orest. A urther consideration is that soy is
a key eed ingredient or cattle, causing a relationshipbetween price increases or soy and production o bee.
Economists are beginning to develop modelsspecically designed to examine the eect o dierent
bioenergy and climate policies on global agriculturaland orestry production and prices. One recentstudy just published in November 2009 by AllaGolub o Purdue University and coauthors nds
results consistent with this report. Te Golub studyuses a general equilibrium model that links global
agriculture and orestry to look at how dierent landuse opportunities or greenhouse gas abatementinteract with each other. Te study nds that a $100/ton carbon price leads to an expansion over businessas usual o standing tropical orests that reduces
the amount o land available or crops and grazing.Te paper nds that this reduction in available land,
among other actors, leads to agricultural and cattleproduction shiting to other countries. Under the$100/ton carbon price, their model estimates thatthe United States increases its crop productionrom between one and our percent and its cattle
production by two percent.12
An Iowa State University study by Kanlaya J. Barr
and coauthors estimates elasticities o land supplyor agricultural commodities in the United Statesand Brazil, both major producers and exporters osoybeans and bee. Tese elasticities capture the
willingness o producers in each country to transorm
land rom one use to another. In this case, it analyzeslikely choices between orest, crops and pasture. Tepaper ocuses on the eect that agriculture priceincreases would have on land choices. Tey estimatethat cropland elasticities in the United States aremuch lower than those o Brazil.13
In a related study, Michael J. Roberts and WolramSchlenker seek to understand how global ood priceand quantities supplied vary with respect to changes insupply due to biouel demand and other actors. Teir
report nds that major producers and exporters, suchas the United States and Brazil, demonstrate higher
elasticities o supply in relation to producers thatconsume most o their own output.14 Also, they ndhigher elasticities o supply or the United States thanound by Barr.
Blandine Antoine et al. also examine land use changes
in orested areas, considering recreational value inaddition to crops, pastures, managed orests andnational orests. Te Antoine study uses elasticities o
land transormation that are similar to those used inGolub et al.15
Although these studies provide a basis or urtherunderstanding o the impact o reduced deorestationon various markets, there has not been any publishedanalysis o the eect o deorestation alone on the
* Production costs are higher because the least-cost option (deorestation) is no longer available. Gan et al. nds that in the orestry sector, shiting to sustainable harvest will increase production costs and thereore shit some o the
production rom one country to another.
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U.S. agriculture and timber markets. An integratedeconomic model would best address the complicatedinteractions o price and supply between and amongthese sectors. Individual commodity models used
within the industry will also provide useul results.In the immediate absence o such models, we seekto provide an initial indication o the magnitude oimpact that a reduction in deorestation could have on
selected sectors.Estimating restricted commodity supply.Whiledata on these commodities is plentiul, most data
include crops rom plantations and existing yields.We seek to estimate the eect o a reduction indeorestation only and thereore have developedindividual methods based on deorestation rates, yield
and other relevant data.*
Not all deorestation results in greater supplies otimber or agricultural commodities to the global
market. Wood rom tropical orests may also be usedas uel wood in local markets, destroyed as collateraldamage to create roads, burned, or decomposed. Oncecleared, land can be used or industrial purposes, roads,development, or tree arming as well as agriculture.
Since no global estimates exist or the amount odeorestation driven by dierent commodities, weidentied the main countries where the commodity
was a driver o deorestation and considered onlythose countries in the analysis. We rst gathered data
rom articles and published research that analyzedthe degree to which particular commodities drivedeorestation in dierent places. We then excludedthose countries without high deorestation rates inorder to ocus only on those places where commodity
expansion is driving deorestation.
Because o the lack o global data, we estimateproduction shits rom the countries where theproduction o a given commodity is a signicant drivero deorestation. Because we are only looking at a
sample o countries, we risk missing some shits incommodity production that are likely to result romorest conservation. For some commodities, such asbee, this is likely a minor issue since deorestation orcommercial bee production is predominantly in Brazil.
For timber, however, our ocus on a subset o countrieslikely leads to underestimating the impact since morecountries than the ve we examine harvest tropicalorests and sell the timber in international markets.
We use existing data and simple calculations to
estimate the amount o a commodity that is grown
Intro Table 1: Tropical Deforestation
Top 20 Countries (3)
Country (1)Annual Deforestation
Rate (hectares) (2)
Brazil 3,103,000
Indonesia 1,871,000
Sudan 589,000Myanmar 466,000
Zambia 445,000
Tanzania 412,000
Nigeria 410,000
DR Congo 319,000
Zimbabwe 313,000
Bolivia 270,000
Mexico 260,000
Venezuela 228,000Cameroon 220,000
Cambodia 219,000
Ecuador 198,000
Australia 193,000
Paraguay 179,000
Philippines 157,000
Honduras 156,000
Argentina 150,000
(1) Country list compiled rom NASA Earth Observatory, TropicalDeorestation: causes o deorestation, http://earthobservatory.nasa.gov/Features/Deorestation/deorestation_update3.php.February 1, 2010
(2) Food and Agricultural Organization o the United Nations, Stateo the Worlds Forests, 2009. Average annual change rate inorest cover 2000 2005.
(3) Annual change rate does not directly correlate to emissions, asdeorestation listed above includes both dry and tropical orests.
* Methods vary by commodity depending on available data and market circumstances.
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on or extracted or sale rom ormerly orested land.Data on this topic is sparse. We were not able to ndone data set that could be used or all the sectors. Asa result, we developed individual methods to estimate
the production o each commodity on deorested land.Tese methods are described in the subsections below.Estimating the impact on the U.S. markets for eachcommodity.We combine our estimated avoided
tropical production with a partial equilibrium model,based on current commodity prices and estimateso supply and demand elasticities. Te model isgeographically divided into tropical orest countries(those where agricultural and timber production are
the lead drivers o deorestation), the United Statesand the Rest o the World (ROW).
Te elasticities represent a range ound in existing
literature. Demand elasticities indicate the amounto a commodity that the market will purchase given
a change in the price. Te higher the elasticity, themore consumers will react to a price change by, orexample, switching to substitute products. For eachcommodity, we used a single global elasticity odemand, since these are globally traded commodities.
We averaged the high and low elasticities o demand
to dene a linear global demand curve. For agriculturalcommodities (including bee ), we used data romthe FAPRI elasticity database.16 For timber, we useddemand elasticities rom Waggener and Lane (1997).17Elasticities o demand will likely change over dierentprice ranges as well as over time as global consumptionpatterns change. Tese elasticities will also varyaccording to dierent time horizons as consumers will
have greater ability to adjust diets and nd substitutesover longer periods. We use current estimates and do
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not attempt to account or uture changes in demand.Supply elasticities represent the change in the amounto a commodity that producers will supply given achange in price. Tese incorporate a countrys ability
to increase yield rates, land availability and capitalconstraints. For each commodity examined, we usethe estimated supply elasticities to dene a set o threelinear supply curves or the United States, rainorestnations, and the rest o the world. We estimated a
high and low supply elasticity to provide a range. Wedrew heavily rom the FAPRI database, but also usedcommodity-specic elasticities where appropriate (seeAnnex D or urther discussion o elasticity choices). Ingeneral, the supply elasticities used in this analysis are
short-term to mid-term. One might expect that longer-term supply elasticities would be higher as they wouldincorporate greater adjustments in production.
Te combination o our estimated supply and demandcurves indicates the global price equilibrium
o a commodity and how much each country is likelyto supply at that price (see Annex C or urtherdiscussion). Its important to note that the estimateddecrease in supply or supply growth and increase inprices reported in this paper represent changes only
or the individual commodity and are not refective o
ood supply or prices in general. In world ood markets,commodities are substituted and technologies areconstantly evolving, aecting net ood supply and price.
o understand the range o possible impacts on
individual commodity producers in the United States,we use both high and low estimates o changes to U.S.revenue. High U.S. revenue estimates are based on highelasticities o supply or the U.S. and low elasticities osupply or rainorest nations and ROW. In other words,
under this scenario, the United States is more likely
to adjust production in response to price increases andproduction gaps than the rest o the world. Our lowU.S. revenue estimates are based on high elasticities osupply or rainorest nations and ROW and low supply
elasticities or the United States where the UnitedStates is relatively less likely to change productiongiven price increases and production gaps than the rest
o the world.Using one elasticity o supply or rainorest nationsand ROW does not account or individual countriesabilities to react to the market. For example, in timbermarkets, northern European timber output has been
declining due to reduced harvesting, as it is not pricecompetitive. However, productive capacity exists andEurope may have an ability to respond airly quicklyto ll a shortall in world market supply o lumber.
Tis specic elasticity is aggregated into the ROW
estimate. Although less detailed, this estimate providesa more simple and transparent analysis or thispreliminary study.
Te partial equilibrium model provides estimates oannual price eects and production/revenue eects
o decreasing production on orested land. Resultsshow the increase in revenue to U.S. agriculture andtimber rom both a price increase and also an increasein production. Te analysis does not dierentiatebetween the change in production due to land
expansion versus an increase in yield. Tese eectsare in principle captured in the elasticities o supplyor each commodity and region, which would have adierent set o opportunities to increase production.Under a system o protected orests, rainorest nations
are still likely to have opportunities or agriculturalexpansion into non-orested land or reorestation ortimber production. As noted above, while the partialequilibrium model accounts or how each countryor region will behave with a price increase o a given
commodity, it does not consider the interactionsbetween commodities.
Estimating cumulative impacts. Once a plantation orgrazing area is established, the yield enters the marketin subsequent years. However, deorested lands poor
ertility combined with poor agricultural practices cancause land, particularly that used or cattle ranching,to decline in productivity. As a result, ranchers otenabandon their land ater just a ew years and clearadditional orest to accommodate their herd. Tis
abandon-and-deorest process adds signicantly tothe deorestation produced by certain commodities,
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particularly cattle.Cumulative estimates or each commodity included inthis paper are based on estimates o that commodityslikelihood to continue production on cleared land.
For soybeans and oilseeds, we assume that the clearedland will produce each year between 2012 and 2030.For cattle, we assume it will produce or ve years andthen cease to be productive pasture land (see SectionII.c or more detail). imber is harvested once and
assumed not to regenerate or commercial timberproduction within the timerames considered inthis study.
We used the partial equilibrium model to estimate thecumulative revenue increase or each commodity o
a gradual reduction in deorestation rom 0 to 100%between 2012 and 2030, hitting a 50% reduction indeorestation at 2020. We include several simpliedassumptions. We measure the impact o reducingdeorestation relative to a stylized scenario where
uture production only increases as a result o estimatedtropical deorestation. We also assume this productionincrease at the orest rontier exactly satises uturedemand growth so that prices stay constant in real(infation adjusted) terms. Additionally, we assume the
estimated supply and demand elasticities stay constant
over time. Tis simple baseline scenario ignores trendsin yield growth and other actors and is intended toprovide a simple indication o the potential magnitudeso the eects. In addition, the model does not adjust or
short-term and long-term elasticities. In the long run,
sustained price increases infuence a variety o market
adjustments that shit demand and supply. Tis wouldlead to higher long-run elasticities o both supply anddemand, which are not estimated in our model. Temodel thereore allows or long-term sustained priceincreases, which lead to higher prices in the later years
than one would expect over the long run.
Using these assumptions and inputs, we used the partialequilibrium model to estimate the amount o reducedtropical production that the United States wouldsupply and the additional revenue due to associated
price increases.
State-level impacts. For each commodity, thecumulative impacts are broken down by state, basedon existing production. We calculate the percentagethat each state producers based on USDA and Census
data and ascribe the increased production value to eachstate based on this data. Past production is an imperectproxy or uture expansion, as it does not consider state-specic actors such as land availability restrictions oropportunity costs o other crops. We present it here as
a rough distribution indication, acknowledging that theaorementioned actors could shit how an increase inU.S. supply would be met. Subsequent analysis should
more thoroughly consider state-specic elasticitieso supply.
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O
ne o the most contentious areas o energyand climate policy has been a major dispute
about whether or not biouels produced orconsumed in the United States and other developedcountries are driving deorestation.
A number o studies published in prominent scienticjournals have concluded that growing crops or uel
in the United States and Europe displaces ood crops,leading to higher ood prices and greater demand oragricultural products that in turn drives deorestation
or agricultural expansion.* As a result o this indirectland use impact, these studies ound that ethanol
and other biouels caused signicantly more c limatepollution than the gasoline they are meant to replace.
In a report published in the journal Science, orinstance, Princeton Universitys im Searchingeround that corn-based ethanol grown in the UnitedStates increased greenhouse gas emissions or 167
years over gasoline.
sIdebar: ei h eh w
Biouels manuactuers, growers and others havedisputed these ndings, arguing that land use decisions
in tropical countries are driven by many orces otherthan developed country energy and land use policy and that increasing yields rom many crops could
counteract any indirect land use impacts.**
Teres a lot at stake in this debate and not just orthe environment. Te 2007 Energy Independence and
Security Act mandated the production o 36 billiongallons o biouels by 2022 (a quadrupling o currentproduction), but required 22.3 billion gallons o that tobe subject to liecycle greenhouse gas analysis to ensure
that it actually reduced pollution relative to gasoline.As part o that analysis, it stipulated that indirect landuse impacts such as tropical deorestation be used to
calculate the total greenhouse gas impact o biouels.
I ethanol is ound to indeed drive deorestation atsignicant levels, it would be ineligible to ll thedemand created by part o the 36 billion gallon
mandate signicantly reducing a source o incomeor corn growers and ethanol manuacturers.
Although stark disagreements about the environmental
impact o ethanol persist, environmentalists andbiouels producers have reached a consensus that
protecting rainorests through climate nancemechanisms will dramatically reduce any indirectland use concerns. In most parts o the world, evenadditional income rom biouels cant come closeto generating the levels o revenue that could
be available to landowners rom climate nanceincentives or orest conservation meaning thattropical orests will generally stay intact.
As a result, protecting rainorests through climatenance will allow biouels producers and growers in
the United States to prosper with ewer concerns aboutthe environmental impact o their production.
REDD can help reduce the
potential for any direct andindirect effects of bioenergy
production on greenhouse
gas emissions from changes
in agriculture and other
land uses.
Annie PetsonkEnvironmental Deense Fund
* Fargione, Joseph; Jason Hill, David ilman; Stephen Polansky; and Peter Hawthorne. Land Clearing and the Biouel Carbon Debt, Science. Vol.319, No. 29. February 29, 2008. P. 1235-1238.
Searchinger, imothy; Ralph Heimlich; R.A. Houghton; Amani Elobeid; Jacinto Fabiosa; Simla okgoz; Dermot Hayes; and un-Hsiang Yu.Use o U.S. Croplands or Biouels Increases Greenhouse Gases Trough Emissions rom Land Use Change. Science. February 29, 2008. Vol319, no. 5867. P. 1238-1240.
** Khosla, Vinod. Biouels: Clariying Assumptions. Science. Vol. 322, No. 5900. October 17, 2008. P. 371-374. Energy Independence and Security Act, itle II
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Te Ohio Corn Growers Association recognizes that the
indirect land use debate has many arguments on both sides
of the issue. Regardless, stopping tropical deforestation
is a win for U.S. agricultures competitiveness as well as
ending the debate on corns role in indirect land use.
Dwayne Siekman
Ohio Corn Growers Association
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sy
Te United States is the leading producer o soybeanswith 33% o global production in 2007, ollowed byBrazil, Argentina, and China.18 Te United Statesis also the top exporter o soybeans, accounting or40% o global exports in 2007, ollowed by Brazil,
Argentina, Paraguay and Canada.
Te relationship between soy cultivation anddeorestation in the Amazon is complex. In 2003,soybeans accounted or approximately our percent othe agricultural land in the Amazon. Most Amazon
soybeans are grown on large-scale commercialplantations.19 In some instances, commercial soy
cultivation is not an initial driver, but ollows initialdeorestation or other purposes. Cattle ranchers orsmall-scale armers deorest the land and then move
on when the soil has become depleted. Commercialsoy operations recondition the land and createlong-term soy plantations.19 Increasingly, however,large-scale agriculture itsel is the primary driver odeorestation. A National Academies o Science study
o Brazils Mato Grosso state by Morton et al. showsthat 17% o deorestation was caused by large-scaleagriculture between 2001 and 2004. Further, thisexpansion closely tracks global soybean prices as
prices go up, more land is cleared or large-scaleagriculture.20 Te increase in soybean cultivation asa driver o deorestation is partially due to expandedtransportation inrastructure in orested regions.Production o soybeans in closed-canopy orestincreased 15% per year rom 1999 to 2004.21
Te price o orested land is substantially cheaperthan other agricultural land in Brazil. In 2004,uncleared Brazilian savannah or orest cost aboutUS$50/acre. In contrast, cleared Brazilian agriculturalland ranged in price between $100 and $300.22
Whether commercial soy plantations are the driveror the secondary beneciary, unprotected orests areleading to expanded soy cultivation in the tropics.
Argentina has also emerged as a leader in soyproduction and exports. In Argentina, expansion
in soybeans has replaced other crops. However, theintroduction o new soy varieties and other actorshave led to deorestation or soy plantations.23
ogether, the United States, Brazil and Argentina
produce about our-ths o the worlds soybean cropand account or 90% o global exports.24
Recent studies suggest that soybean productionin Brazil and Argentina aects world markets,including those in the United States. A USDAanalysis ound that exports rom Brazil andArgentina were projected to cause a reduction in
U.S. soybean exports.25 Additional data show thatthe United States is able to pick up gaps in globalproduction. In the 2008 2009 growing season,
global soybean production decreased by 11%. Inresponse, the United States increased production,
pulling the world soybean output up by ve percent,counteracting the sharp declines in production inArgentina, Brazil and Paraguay.26
Table SB1: Global Soybean Producers, 2007
CountryProduction
(tonnes)
% World
Production
United States 72,860,400 33%
Brazil 57,857,200 26%
Argentina 47,482,784 22%
China 13,800,147 6%
Source: Food and Agricultural Organization o the United Nations,FAOStat, FAO Statistics Division (2009)
Table SB2: Top Global Soybean Exporters, 2007
CountryExport Quantity
(tonnes)
% World
Exports
United States 29,840,182 40%
Brazil 23,733,776 32%
Argentina 11,842,537 16%
Paraguay 3,520,813 5%
Source: Food and Agriculture Organization o the United Nations,FAOStat, FAO Statistics Division (2009)
II commodItY cHange estImates and ImPacts on us markets
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o get a preliminary understanding o howdeorestation aects soy producers in the United States,
we examined the amount o soybeans entering themarket on land that was cleared or soybean growth in
Argentina, Brazil and Paraguay. Tis does not includesoybean production on land that was cleared or otherpurposes and then converted to soy plantations.
otal deorestation or these countries combinedis 3.4 million hectares (3.1 million in Brazil, 0.18
million in Paraguay and 0.15 million in Argentina*).27Given the lack o conclusive data on the driverso deorestation, we extrapolated the inormationreported in Mortons study and assumed that 17%o the deorestation in each country was due tolarge-scale agriculture.28 In the literature reviewed
or this study, soy was the prime (and oten only)
commodity discussed or large-scale commercialcrops in the Amazon. Nonetheless, we assumed thatit is reasonable that some other large-scale crops aregrowing on this land and conservatively discounted our
estimate by 20% to account or potential attributionerrors or other crops. Given a yield o 2.97, 2.81,and 2.41 tonnes per hectare or Argentina, Braziland Paraguay respectively,29 we estimate the annualavoided expanded production rom the orest rontierat 653,000 tonnes per year i deorestation is halved
and approximately 1,306,500 tonnes per year i netdeorestation is eliminated entirely.
Using a partial equilibrium model, we estimatedthe eect on U.S. soybean revenue that would resultrom reduced deorestation in Brazil, Argentina and
Paraguay. We used a 2008 price o $323/tonne.30
* Numbers are rounded to the nearest thousand. Most literature on this topic addresses soy as the large-scale agricultural crop. Te study noted above by D.C. Morton et al. notes that deoresta-
tion or large-scale crops in Mato Grosso is highly correlated with global soy prices, indicating that soy is a main driver. In the absence o dataindicating other crops driving large-scale agriculture in the Amazon, we assume 20% as a proxy and apply a discount actor o 0.8.
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able SB3 shows the annual production data used. Terst row o able SB3 shows our estimate o the annualamount o soybeans that is grown on rainorests clearedor soybean cultivation (based on our analysis described
above). Te second row shows all the soybeans thatenter the market rom Brazil, Argentina and Paraguay.
Tese two rows are dierent because not all soybeansrom these countries are grown on land deorestedor soybean cultivation. Some is grown on land other
than tropical orest and some is grown on land thatwas orested, but was cleared or reasons other thansoybeans. Its common that land is cleared or livestockgrazing, but then converted to soy plantations. In somecases, the baseline production in these countries is
rom land that was cleared or soybean production inprevious years and now enters the market annually.
o estimate supply response, we use the averagesoybean-specic demand elasticity o -0.275.31 Tismeans that the global demand or soybeans declinesby about 0.275% or each 1% increase in the price osoybeans. o estimate supply response, we use a high
supply elasticity o 0.2532 and a low supply elasticityo 0.633 or the three regions evaluated in the model(tropical orest countries, the United State and the resto the world). While elasticities o supply are likely to
dier between the regions, these elasticities represent
an approximate middle-range within availableliterature. Tis mid-range allows us to examine whatcould happen i the U.S. has a relatively higher abilityto react than the rest o the world and vice versa. In
the long run, we would expect supply elasticities to behigher, accounting or various market adjustments thataect supply. Individual suppliers ace more long-runoptions such as technology shits or shits to otherproduction sources (in this case, other types o land).
Long-term global supply can also shit because newentrants are likely to enter the market i prices arehigher, or exit the market i prices are lower. Tereore,the price eects in the later years are likely smallerthan our model estimates. (See Annex D or urther
discussion o the partial equilibrium model anddata inputs.)
We used two scenarios with dierent elasticities osupply to represent the likely high and low impact onU.S. revenue. Tese scenarios were: (1) high supply
elasticity or the United States and low supplyelasticity or rainorest nations and the rest o the
world; and (2) low supply elasticity or the UnitedStates and high supply elasticity or rainorest nationsand the rest o the world. For each scenario, we
estimated the annual impacts at both a 50% and 100%
reduction in deorestation. able SB4 shows the results.All results are reported in 2008 U.S. dollars.
Where the U.S. has a higher ability to react to priceincreases, annual U.S. revenue increases by $590
million i deorestation is ended. Where U.S. abilityto react to price is less than the rest o the world,annual U.S. revenue increases by $387 million withzero deorestation.
Te cumulative eects assume that a 100% reduction
in deorestation is achieved gradually with 10% in2012 increasing annually to 100% in 2030. We assumethat once the land is cleared or soybean cultivation,the crop will continue to produce rom 2012 to 2030.
For simplicity, we assume that increases in productionrom deorestation are exactly enough to meetuture increases in demand such that real prices stay
Table SB3: Annual Soybean Production
by Region, 2007
Country/Region Tonnes
Annual soybean production that
drives deforestation (1)1,306,534
Other annual soybean production
from Brazil, Argentina and
Paraguay (2)
109,889,450
United States 72,860,400
Rest of World 36,476,228
Source: Food and Agriculture Organization o the United Nations,FAOStat, FAO Statistics Division(1) Calculated rom methods described above(2) equals [Total production rom Brazil, Argentina, and Paraguay
as reported by FAO] [Annual soybean production that drivesdeorestation]
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constant over time. Future sources o demand, suchas population growth, changing diets in developingcountries, and growing biouel use could increase theprice more than is refected in our model, while yieldgrowth and other sources o supply outside the tropics
could lead to lower prices. In the cumulative analysis,the model shows price increases each year, which areinitially less than the annual price increase and becomehigher than the annual percentage change in later years.
Tis is because the amount o soybeans not entering
the market in early years are added to those notentering the market in later years. In year one, the price(in 2008 dollars) is estimated to increase by between $2and $3 per tonne (a 0.6% to 0.9% increase over 2008prices). In year 19, the price increases between $51 and$60 per tonne (a 15.8 % to 18.6% increase over 2008
prices). Long-run elasticities that allow or marketadjustments would reduce the price eects especiallyin later years. Given these assumptions, the cumulativeincrease in revenue to U.S. soybean growers rom 2012to 2030 with gradual orest protection up to 100% in
2030 would be between $34.2 billion and $53.4 billion.
Soy production in the United States is concentrated inthe South and Midwest, with some production on theEast Coast. able SB5 shows how much revenue eachU.S. state stands to gain rom gradually eliminating
deorestation, presuming proportional benets to
dierent states based on current production levels. Tehigh and low estimates are based on the cumulativeestimates between 2012 and 2030 that are described
above. Annex E shows projected revenue increases orall states.
Table SB4: Soybean Modeling Results
Scenario
Price Change
(Annual)
Annual U.S. Revenue
IncreaseCumulative Revenue
Increase to U.S. from
Ending Deforestation,
2012 2030$/tonne
%
Change U.S.$
%
Change
Low U.S.
Revenue
50% reduction
in deforestation$3 1.03% $265,384,316 1.13%
$34,198,100,533100% reduction
in deforestation$4.67 1.45% $386,824,566 1.64%
High U.S.
Revenue
50% reduction
in deforestation$4 1.20% $405,005,077 1.72%
$53,441,145,875100% reduction
in deforestation$5.49 1.70% $590,833,044 2.51%
Table SB5: State-level Soybean Revenue
Increases From Rainforest Conservation
State (1)
Cumulative Revenue Increase
from Ending Deforestation,
2012 2030 (Range in millions)
Iowa $4,945 $7,728
Illinois $4,376 $6,839
Minnesota $2,898 $4,528
Indiana $2,712 $4,238
Nebraska $2,640 $4,125
Missouri $2,346 $3,666
Ohio $2,259 $3,529
South Dakota $1,791 $2,798
Kansas $1,634 $2,554
Arkansas $1,248 $1,950
(1) State rank rom USDA, National Agricultural Statistics Service.Based on 2009 production data.
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V oi
Te greatest driver o deorestation in Asia is palmoil cultivation.34 Rubber, sugarcane and coee alsocontribute, but to a much lesser extent.35 Te growthin palm oil production is largely a result o growingdemand or ood, cosmetics and biouels.36 Seventy-
seven percent o palm oil is used or ood,37 but demandas a uel source has risen, especially in Europe.38
Indonesia and Malaysia are the major producers opalm oil and related products, together accountingor about 88% o total world palm oil production.39
Over hal the new oil palm plantations between 1990and 2005 in Indonesia and Malaysia were established
on newly deorested land. Tis is partly becauselogging generates revenue that covers initial costs oestablishing the plantation.40
Palm oil directly competes with and is easily
replaced by other oils including canola (rapeseed)oil, sunfower oil, cottonseed oil, and soybean oil.41Most products containing palm oil, palm kernel oil,or derivatives such as palmitate requently exchangethese other edible oils depending on small variations
in price and availability. While the United Statesdoes not produce any palm ruit, it ranks ourthin production o the other oilseeds noted above.Since some crops have other uses (e.g., only 19% osoybeans are used or oil), we calculated the amount
used or oil. able PO1 shows the top producers o
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oilseeds (palm ruit, rapeseed (canola), sunfower seed,
cottonseed and soybeans*).
Indonesia and Malaysia collectively produced morethan 152 million tonnes o palm ruit and 32
million tonnes o palm oil in 2007, o which over22 million tonnes were exported.42 Teir combined
average annual production increase o palm ruitbetween 2000 and 2007 was over 9 million tonnes more than 5.9 million tonnes in Indonesia and 3.2million tonnes in Malaysia.43 Te percentage o palm
production in Indonesia and Malaysia associated withdeorestation is 57% and 56% respectively.44 Givenexisting yields and market conditions, we estimatethat ending deorestation would reduce business asusual supply o palm ruit by 5 million tonnes.
Using the partial equilibrium model, we estimatedthe eect on U.S. oilseed producers that would resultrom reduced deorestation in Indonesia and Malaysia.
able PO2 shows the annual production data. Te rstrow o able PO2 shows our estimate o the annual
amount o palm production grown on land clearedor palm plantations (based on our analysis describedabove). Te second row shows the remainder o palmand oilseed production that enters the market romIndonesia and Malaysia. Tese numbers are dierentbecause not all palm production rom these countries
comes rom land deorested or palm plantations.Some is grown in other areas o the country and someis grown on land that was ormerly orested, but wasnot deorested that year or palm production.
We input the above inormation into our partialequilibrium model, using the average oilseed-specicdemand elasticity o -0.305 and a mix o high andlow global oilseed supply elasticities o 0.2545 to 0.6.46
Tese are the same supply elasticities used in thesoybean analysis and provide a simple, transparentmethod. Tese high and low elasticities o supply are
alternated between regions depending on the scenario(i.e., high U.S. revenue or low U.S. revenue scenario).Aggregating high and low elasticities o supply or allregions does not allow or individual country estimates.
However, these serve as approximate numbers that liewithin the upper and lower boundaries o the supply
elasticities that we ound in existing literature. In thelong run, we would expect supply elasticities to behigher, accounting or various market adjustments thataect supply (see section II.a or urther discussion).For the price in a business as usual scenario, we used
* Te soybean market will be aected by tropical orested countries decreasing both soybean and palm oil production. When analyzing soybeansupply as a substitute or palm oil, we only count the amount o U.S. soybean production that is historically allocated to make soybean oil.
Numbers are rounded to the nearest 0.1 million
Table PO1: Top Global Producers of Palm Oil
and Palm Oil Substitutes, 2007 (1)
Country
Production
Quantity
(Tonnes) (2)
% Global
Production
Malaysia 79,100,000 24.63%
Indonesia 78,117,784 24.32%
China 18,440,572 5.74%
United States 17,383,302 5.41%
India 12,991,650 4.04%
Brazil 12,549,340 3.91%
Source: Food and Agricultural Organization o the United Nations,FAOStats, FAO Statistics Division(1) Palm oil substitutes include cottonseed oil, canola oil, soybean
oil and sunfower oil(2) Oilseed production is discounted or the percentage generally
used or oil versus other uses. Percentage o each oilseed usedor oil are assumed to be: palm ruit 100%; rapeseed (canola) 100%; cotton seed 16.2%; soybeans 19%; sunfower
seeds 91%.
PO2: Annual Oilseed Production by Region, 2007
Country/Region Tonnes
Annual palm and oilseed
production that drives
deforestation (1)
5,161,743
Other annual palm and oilseed
production from Indonesia and
Malaysia (2)
152,056,042
Annual U.S. oilseed production 17,383,302
Annual Rest of World oilseedproduction
146,589,556
Source: Food and Agriculture Organization o the United Nations,FAOStat, FAO Statistics Division(1) Calculated rom methods described above(2) equals [Total production rom Indonesia and Malaysia as
reported by FAO] [Annual palm production that drivesdeorestation]
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an average 2008 price o oilseeds (weighted by U.S.production) o $324/tonne.47 (See Annex D orurther discussion o the partial equilibrium modeland data inputs.)
We used two scenarios with dierent elasticities osupply to represent the likely high and low impact onU.S. revenue. Tese scenarios were: (1) high supplyelasticity or the U.S and low supply elasticity orrainorest nations and the rest o the world (which
represents the high revenue estimate); and (2) lowsupply elasticity or the United States and highsupply elasticity or rainorest nations and the rest othe world (which provides the low revenue estimate).For each scenario, we estimated the annual impacts
at both a 50% and 100% reduction in deorestation.able PO3 shows the results. All results are reportedin 2008 U.S. dollars.
In the high U.S. elasticity scenario, annual U.S. revenueor palm oil substitutes increases by approximately
$202 million i deorestation is reduced by 50% andmore than $340 million i deorestation is eliminated.
Tis increase is due in part to an increased productionand in part to increase in the annual price o oilseedsdue to the restricted supply. Te annual price increases
rom between 2.4% to almost 4%.
Using the partial equilibrium model to estimatecumulative impacts, we assumed that deorestation
reduction phases in gradually rom a 10% reduction indeorestation in 2012 to 100% reduction in 2030. Wealso assume that once planted, a palm oil plantationremains productive or the time rame examined(2012 2030). Te corresponding price increases
change each year, with initial years being less thanthe estimated annual price change and latter yearsbeing higher than the estimated annual price change.In year one, the price change ranges between twodollars and our dollars per tonne (a 0.6% to 0.9%
increase over 2008 prices). In year 19, the price changeranges between $117 and $195 per tonne (a 36% to60% increase over 2008 prices). As noted in previoussections, long-run elasticities o supply would likelyaccount or market changes and lead to less signicantprice increases in the latter years.
Given these results, we nd that total U.S. revenueincreases or oilseeds rom orest conservation wouldbe between $17.8 billion and $39.9 billion. Teabove estimates are based on the price o oilseed
crops. Processed oil is about twice the price o rawoilseed crops and thereore the total revenue increase
would be expected to be higher.
Table PO3: Palm Oil Modeling Results
Scenario
Price Change
(Annual)
Annual U.S. Revenue
IncreaseCumulative Revenue
Increase to U.S. from
Ending Deforestation,
2012 2030$/tonne
%
Change U.S.$
%
Change
Low U.S.
Revenue
50% reduction
in deforestation$5 1.6% $100,073,149 1.8%
$17,819,523,653100% reduction
in deforestation$8 2.5% $168,151,377 3.0%
High U.S.
Revenue
50% reduction
in deforestation$8 2.4% $202,179,158 3.6%
$39,897,030,304100% reduction
in deforestation$13 3.9% $340,710,694 6.1%
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Most states produce some substitute or palm oil. ablePO4 shows the top 15 oilseed producing states. Asnoted below, the revenue is based on the price o theoilseed crop and not the processed oil. Te Midwest is
the strongest producer o oilseed crops, with signicantproduction also coming rom southern states. A ulllist o oilseed producing states can be ound in AnnexE. Tese estimates are based on the assumption thateach state captures its existing market share, which, as
discussed above, is a rough proxy.
bf
Te United States is the worlds largest producero bee48 with 12 million tonnes produced in 2007,amounting to about 20% o the total world market49.Cattle ranching expansion is the primary driver or
deorestation in Brazil50, which is the worlds largestbee exporter.51
Estimates o the amount o deorestation attributableto cattle ranching in Brazil are between about 60%52
and 80%.53 A 2004 report by the USDA estimates that
1.4 million hectares each year are attributed to cattleranching,54 which would have been 61% o Brazilstotal deorestation.55 A recent study o deorestationdrivers in Brazils Mato Grasso state ound that cattle,
which accounted or almost 80% o deorestation in
2002, accounted or approximately 66% in 2003.56
Argentina is also a large bee producer and exporter, butbecause the bulk o ranching occurs on the Argentinepampas (or prairie) livestock production is not asignicant driver o tropical deorestation in Argentina
and is thereore not considered in this analysis.
Te bee trade is complicated by health issues such as
oot-and-mouth disease, which has been a problemor Brazil, and bovine spongiorm encephalopathy(BSE), which has been ound in the United States and
restricts U.S. exports.57 Health concerns have createdtwo dierent markets, one or resh bee and one orprocessed bee. Our analysis neither distinguishesbetween the markets nor predicts the impact o traderestrictions on the U.S.s ability to capture market
share available rom reduced deorestation. Tese areimportant actors to consider in uture analysis.
Using a gure o 61% o Brazils annual deorestationattributable to cattle, 1.9 million hectares o naturalorested land in the Amazon are converted every year
to cattle raising. Brazilian cattle yield is just one headper hectare58 and Brazilian bee yields .2295 tons (459lbs) o bee/head.59 (As a point o comparison, USDAchoice bee yields about 487.8 lbs o bee per head.60)
Table PO4: State-level Oilseed Revenue
Increases from Rainforest Conservation
State (1)
Cumulative Revenue Increase
from Ending Deforestation,
2012 2030 (Range in Millions)
Iowa $2,067 $4,628
Illinois $1,829 $4,096
North Dakota $1,591 $3,562
Minnesota $1,249 $2,795
South Dakota $1,167 $2,614
Indiana $1,134 $2,538
Nebraska $1,118 $2,502
Missouri $1,054 $2,361
Ohio $944 $2,114
Kansas $792 $1,773
Texas $746 $1,671
Arkansas $639 $1,432
Mississippi $388 $868
Tennessee $360 $805
North Carolina $353 $792
(1) State rank based on USDA National Agricultural StatisticsService. Based on 2009 production and value. States areranked by production value as opposed to quantity in order toaccount or dierent values among oilseed crops.
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Tereore, we estimate that each year Amazonianorests are cleared to provide an additional 434,000tonnes o bee.
Using a partial equilibrium model, we estimated theeect on U.S. bee revenue that would result rom areduction in deorestation rom Brazil. We used a 2008price o $5,159/tonne.61 able BF2 shows the annualproduction data used. Te rst row o able BF2 showsour estimate o the annual bee production grown on
land cleared or cattle grazing. Te second row showsall the bee production that enters the market romBrazil. Tese numbers are dierent because not allBrazilian bee comes rom land deorested or cattlegrazing. Some is grown in other areas o the country
and some is grown on land that was deorested orother reasons, such as slash and burn clearings orsubsistence agriculture. Cattle grazing tends to depleteland within a ew years, so while some baselineproduction is rom land cleared in previous years,
this eect is less than or soybeans or oilseeds whichcontinue to produce or longer periods.
We used an average bee-specic demand elasticityo -0.4562 and a mix o high and low bee supplyelasticities (see Annex D or a description o
elasticities). For the United States, supply elasticitiesor bee have a very wide range. In a more complete
study, the assumptions that generate each elasticityshould be examined in order to determine the mostappropriate supply elasticities. For this study, wedrew upon the FAPRI database, which cites a U.S.elasticity o supply o 0.01 or cattle and calves,63indicating a airly low U.S. responsiveness to market
price changes. We keep the U.S. supply elasticityconsistent and alter the demand elasticities orrainorest nations and the rest o the world. Te bee
supply elasticities used in this study or rainorestnations and the rest o the world range rom 0.24564to 0.5,65 based on elasticities o supply specic to
Brazil. Both represent a lagged estimate. Te lowestimate is based on land use in Brazil that includespastureland. Barr et al. ound supply elasticities thatinclude pastureland were lower than those without.66
Table BF1: Top Global Beef Producers, 2007
CountryProduction
(Tonnes)
% of World Total
Production
United States 12,044,305 20%
Brazil 7,048,995 12%
China 5,849,010 10%
Argentina 2,830,000 5%
Australia 2,226,292 4%
Source: Food and Agriculture Organization o the United Nations,FAOStats.
BF2: Annual Beef Production by Region, 2007
Country/Region Tonnes
Annual beef production that
drives deforestation (1)434,404
Other annual beef production
from Brazil (2)6,614,591
United States 12,044,305
Rest of World 40,758,560
Source: Food and Agriculture Organization o the United Nations,FAOStat, FAO Statistics Division.(1) Calculated rom methods described above(2) equals [Total bee production rom Brazil as reported by FAO]
[Annual bee production that drives deorestation]
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Te high estimate is supply elasticity or cattle and
calves rom the FAPRI database.67 We used two
scenarios with dierent elasticities o supply to represent
the likely high and low impact on U.S. revenue. For each
scenario, we estimated the annual impacts at both a 50%and 100% reduction in deorestation. able BF3 shows
the results. All results are reported in 2008 U.S. dollars.
Where the ROW countries have low abilities to react
to price increases, U.S. revenue or bee increases by
$1.5 billion annually when deorestation is eliminated.
I Brazil and the rest o the world have a high ability to
produce more bee given higher bee prices, the annual
revenue increase to the United States would be $2.3
billion with a 100% reduction in deorestation.
Deorested land in the tropics typically sustains cattle
or ve to ten years beore the land is depleted and the
ranchers move on to deorest more land.* We assumedthe conservative ve-year estimate o production.
Using the partial equilibrium model, we estimated the
cumulative revenue gains assuming that deorestation
declines gradually rom a 10% reduction in deorestation
in 2012 to a 100% reduction in 2030. Te price o bee
increases gradually as well over this time. Te price
increases in year one range rom $126 to $159 (a 2.4%to 3% increase over 2008 prices) and in year 19 the price
increases range rom $331 to $441 (a 6.4% to 8.5%
increase over 2008 prices). We estimate the cumulative
benet o this gradual reduction in deorestation to
U.S. cattle producers to be between $53 billion and
$67 billion.
able BF4 shows the top 15 bee producing states in2008 and an illustration o state distribution o the
economic gain to cattle producers i deorestation werehalted, given existing production rates. Tese estimates
are based on the assumption that each state capturesits existing market share. Annex E shows estimatedrevenue increases or all states.
* Food and Agriculture Organization o the United Nations. Livestock Policy Brie 03: Cattle ranching and deorestation. Livestock Inormation,Sector Analysis and Policy Branch. Animal Protection and Health Division. December 4, 2009.
Table BF3: Beef Modeling Results
Scenario
Price Change
(Annual)
Annual U.S. Revenue
IncreaseCumulative Revenue
Increase to U.S. from
Ending Deforestation,
2012 2030U.S.
$/tonne
%
Change U.S.$
%
ChangeLow U.S.
Revenue
50% REDD $127 2.46% $1,532,682,136 2.47%$52,744,788,255
100% REDD $150 2.92% $1,817,345,327 2.92%
High U.S.
Revenue
50% REDD $160 3.10% $1,934,190,165 3.11%$67,963,111,806
100% REDD $191 3.70% $2,310,830,350 3.72%
Table BF4: State-level Beef Revenue Increases
from Rainforest Conservation
State (1)
Cumulative Gain from Ending
Deforestation, 2012 2030
(Range in millions)
Texas $8,368 $10,782
Nebraska $5,992 $7,721
Kansas $5,046 $6,502
Oklahoma $2,640 $3,402
California $2,447 $3,153
Colorado $2,426 $3,126
Iowa $2,392 $3,083
South Dakota $1,919 $2,473
Missouri $1,731 $2,230
Idaho $1,478 $1,905
Minnesota $1,437 $1,851
Wisconsin $1,403 $1,80
Montana $1,257 $1,620
North Dakota $972 $1,252
New Mexico $909 $1,171
(1) State rank rom USDA National Agricultural Statistics Service.Rank based on 2009 production data.
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ti
Natural orests are mostly not cleared exclusivelyor timber, but logging increases the protability
o deorestation. Many tree species exist in naturaltropical orests, oten more than 100 on a singlehectare and over 1,000 in a single region.68 Not allo these trees have commercial value and not all
wood o commercial value makes it to the market.Wood may be let to decay or be used as uel wood.
Te volume and type o high-value trees, as well asthe reasons and timerames or logging them, dierby region.69
In the Amazon, timber has not traditionally been aprimary driver o deorestation. However, loggingoten involves road construction that enables less well-capitalized cattle and agriculture operations to move in
behind timber. An estimated 12,000 to 19,800 squarekilometers o the Brazilian Amazon are logged every
year.70 However, much o the wood rom the orestis not extracted or export, but is lost to collateraldamage rom roads or is burned. Te main timberexport rom the Amazon is mahogany, which can be
ound distributed throughout a diverse orest. Whileother types o wood are logged and exported rom theAmazon, data was sparse and thereore we only includemahogany estimates in this analysis.
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In Southeast Asia, timber sales are more closelylinked to deorestation, but are still not the singulardriver. Oten the returns on timber sales nanceplantations, making standing orests nancially
attractive or agricultural conversion.71 Subsistenceagriculture and uel wood consumption also causesdeorestation, but less than commercial agriculture ortimber harvesting.72 More high-end exportable woodis extracted rom natural orests in Southeast Asia thanin the Amazon. In 2007, Malaysia led the world in
tropical hardwood exports, accounting or about 35%o the volume o tropical wood exports.73 Some o thisproduction was rom natural tropical orests and some
was rom tree plantations. ropical wood in this regionincludes teak, epay, and luan plywood.
Te market or particular timber types and qualities is
largely driven by consumer demand, which is aectedby economic conditions as well as by marketing andtrends. Te top ve products made in the U.S. romtropical hardwood species are doors, molding, cabinets,decking and fooring.74 While some tropical woods(such as epay or decking) have unique characteristics,
most uses have readily available American substitutesthat can be used i tropical hardwoods become lessavailable or prices increase.
Most data or timber production includes harvestsrom plantations, which have dierent yields than
harvests in natural orests. Similarly, all deorestedwood does not necessarily enter the global or even thedomestic market. Only a portion o the total volume oa natural orest has commercial value and these treesmay be widely distributed.75 o identiy major sourceso high-end timber rom natural orests, we cross-
reerenced high deorestation developing countrieswith those that had high exports (see able M1).
In Brazil, where high-value trees are widely distributed
and much o the orest does not enter the internationaltimber market, we assumed that one tree per
hectare76 at a mass o 4.6 cubic meters entered themarket. For the Democratic Republic o Congo andSoutheast Asian countries, we used FAOs estimationo commercial timber mass in orests: 25.5 cubicmeters per hectare and 28.9 cubic meters per hectare
respectively.77 We multiplied the commercial timber
mass per hectare by FAOs estimates o the totalhectares o deorestation (see able M1, rst column).
We discounted or slash and burn deorestation, which
is estimated to be 53% in Arica, 44% in Asia, and31% in Latin America.78 Given these assumptions,50,000,000 cubic meters o wood will not enter the
global market when tropical deorestation is eliminated.
able M2 shows estimates or total global hardwoodproduction. Te rst row shows our estimate o the
TableTM1: Deforestation and Exports
for Selected Countries
Country
Annual
Deforestation
(ha) (2000 2005
average) (1)
2007 Exports
(cubic meters) (2)
Brazil 3,103,000 3,595,777
Indonesia 1,871,000 2,669,035
Myanmar 466,000 315,000
Malaysia 140,000 7,320,861
DR Congo 17,000 771,680
(1) Food and Agriculture Organization o the United Nations, Stateo the Worlds Forests, 2009
(2) Food and Agriculture Organization o the United Nations,ForesSTAT. http://aostat.ao.org. Includes Ind Rwd Wir (c), IndRwd Wir (NC) Other, Ind Rwd Wir (NC) Tropica, Sawnwood (C),Sawnwood (NC), and Veneer.
Table TM2: Annual Hardwood Production
by Region
CategoryProduction (million
cubic meters)
Hardwood due to
deforestation in Brazil,
Indonesia, Malaysia,Myanmar, and DR Congo
50
Other hardwood from
Brazil, Indonesia, Malaysia,
Myanmar, and DR Congo
198
United States 157
Rest of World 396
Sources: Sohngen et al. 2007 and Seneca Creek 2004.
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amount o wood that enters the market each yearrom deorested land (based on our analysis describedabove). Te second row shows the remaining hardwoodthat enters the market rom the deoresting countries
considered in this section o the study. Tese numbersare dierent because not all hardwood rom thesecountries comes rom deorestation. Some is rom treeplantations and some is rom degraded (as opposed todeorested) land, which we do not consider here.
Using these inputs, plus a starting 2008 price o $239/cubic meter hardwood,79 we considered two scenariosin the partial equilibrium model. One was a high U.S.timber-specic supply elasticity o 0.2780 coupled with alow timber supply elasticity or the ROW and rainorestnations o 0.2.81 Tis represents a scenario where the
United States has a high willingness and ability toincrease production in response to a price change, wherethe rest o the world has a low ability and willingness.
Te second scenario was based on a low U.S. timber-specic supply elasticity o 0.13482 coupled with a highsupply elasticity or rainorest nations and the rest o the
world o 1.1.83 (See Annex D or more discussion aboutelasticities and model inputs.)
able M3 has the modeling results (in 2008 U.S.dollars). Te annual timber price per cubic meterincreases by between $14/cubic meter and $21/cubicmeter i deorestation is eliminated. In that case,
annual U.S. revenue increases by between $2.5 billionand $4 billion each year. We assume that once a orestis cleared, it is not replanted and thereore timber isonly extracted once. Using the partial equilibriummodel, we estimated the cumulative revenue gains
assuming that deorestation occurs gradually roma 10% reduction in deorestation in 2012 to a 100%reduction in deorestation in 2030. Te cumulativerevenue increase to the United States between 2012and 2030 assuming a gradual increase in orest
protection is estimated to be between $36.2 billionand $60 billion. Te estimated price increases or thisperiod range rom $8 per tonne and $12 per tonne in
year one (a 3.4% to 5% increase over 2008 prices) and$14 per tonne and $21 per tonne in year 19 (a 5.9%to 8.8% increase over 2008 prices).
Table TM3: Timber Modeling Results
Scenario
Price Change(Annual)
Annual U.S. Revenue Increase Cumulative RevenueIncrease to U.S. from
Ending Deforestation,
2012 2030$/m3
%
Change U.S.$
%
Change
Low U.S.
Revenue
50% reduction
in deforestation$11 4.54% $1,843,231,982 4.92%
$36,237,962,107100% reduction
in deforestation$14 5.99% $2,462,331,269 6.57%
High U.S.Revenue
50% reduction
in deforestation$16 6.70% $3,059,486,073 8.16%
$59,955,994,975100% reduction
in deforestation$21 8.64% $4,005,302,651 10.69%
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Table TM4: State-level Hardwood Revenue
Increases From Rainforest Conservation
State (1)
Cumulative Revenue Increase
from Ending Deforestation,
2012 2030 (Range in millions)Pennsylvania $3,711 $6,140
Tennessee $3,360 $5,560
Florida (2) $2,988 $4,944
Virginia $2,697 $4,462
North Carolina $2,273 $3,761
West Virginia $1,957 $3,237
Kentucky $1,926 $3,187
New York $1,632 $2,701
Missouri $1,613 $2,669
Mississippi $1,568 $2,594
(1) State rank based on hardwood production data rom U.S.Census Bureau. Lumber Production and Mill Stocks2008 Annual.
(2) Only total timber production data available to calculate staterank. Hardwood data estimated by applying the regionalpercentage o hardwood production to the total timberproduction. Hardwood accounted or 38% and 2.9% o totaltimber production in the Eastern and Western U.S. respectively.
In the United States, hardwood production isconcentrated in eastern states. able M4 shows thestate distribution o high hardwood-producing statesand illustrates estimates o proportional gain rom
eliminating deorestation (see Annex E or all states).Tis analysis assumes that states retain their existingshare o the market. In reality, the amount o increasethat any state can capture will be a unction o severalactors including land availability and competing uses
or land and capital.
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Protecting tropical orests not onlyreduces competitive pressure on U.S.agricultural producers by reducingoverseas agricultural conversion and
logging, but also lowers projectedinput costs or agriculture, ranching,and timber that could be aectedby climate policy. Energy costsaccount or up to six percent o U.S.agriculture production costs, about
$10 billion per year.84 In addition,
ertilizer and pesticide productionare energy intensive and thereoreertilizer costs tend to increase with
energy prices. Although increasedenergy costs or agriculture rom
climate legislation will be minimal(and may be mostly or entirely osetby rural energy eciency incentivesand domestic oset opportunities),tropical orest osets can still have a
substantial impact.85
Protecting tropical orests is oneo the most aordable ways o
reducing greenhouse gas emissions.For example, Brazil is oering tomake large reductions in emissions
rom deorestation or $5 per tonthrough its Amazon Fund. Someprivate project developers havemade emissions reductions at evenlower costs, while some NGOs
have oered higher cost emissionsreductions. Te EPAs analysiso the House-passed climate
legislation estimated that emission permits would be89% more expensive without international osets(most o which are expected to come rom orestconservation).86 Allowing U.S. emitters to get
* Te analysis in Section III was done by Climate Advisers, 2009. Tis modeling is based on Waxman-Markey. While other legislation has been proposed (e.g., rom Senators Boxer/Kerry, Cantwell/Collins,
Kerry/Graham) the Waxman-Markey analysis remains the most extensive and is thereore used here.** Te impact on cost is also aected by the price o natural gas, which some o the industries use as a eedstock. Future natural gas prices are hard
to predict and cause fuctuations in cost estimates o climate legislation. It is inconclusive what the impact o climate legislation will be on natu-ral gas prices.
III FInancIal ImPact oF troPIcal Forest oFFset aVaIlabIlItYon us agrIculture and tImber IndustrIes*
oset credit or investing in tropical orest
conservation could dramatically lower costs o climatelegislation savings that can be passed on to energy
consumers such as the agriculture, ranching, and
timber industries.**
Total Revenue Gain for Agriculture, Fisheries and
Forestry with and without International Offsets,
2012 2030 (in U.S.$ billions)
30
20
10
0
-10
-20
-30
10
-30
With Offsets
Without Offsets
Total Revenue Change for Timber
with and without International Offsets,
2012 2030 (in U.S.$ billions)
150
100
50
0
-50
-100
-150
With OffsetsWithout Offsets
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Tis estimate applies to all agriculture, orestry, timber, and sheries industries and not only the sectors studied in section II o this study.
Comparing the macroeconomic impacts on theseindustries in an EPA modeling scenario thatincludes international osets with one that doesnot allow international osets shows that allowing
international osets will increase revenue in thedomestic agriculture, orestry, timber, and shingindustries by a combined average o $4.6 billion/
year compared to legislation without internationalosets.It does not account or potential increasesin revenue or these industries rom increases indomestic oset demand that would likely come with
an elimination o international osets. Te primaryimpact o including international osets is to loweraverage annual allowance prices. o the extent that
increases in allowance prices were passed through tothese industries in the orm o increased energy and
input costs, higher allowance prices would cost U.S.agriculture and orest products industries additionalmoney. With tropical orest conservation accountingor approximately 56% o total international osets inthe early years o climate legislation implementation
(and rising ater that) according to a recent analysis,tropical orests deliver an additional cost savings o $49billion between 2012 and 2030 to these industries.87
Tis analysis presumes the use o signicant revenue
rom U.S. climate legislation to help rainorest nationsbuild the capacity to meet the standards required orosets. Without this investment, these osets and their
cost savings may be purely theoretical.
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