August marks the beginning of Amazon fire season, and with deforestation in Brazil on the rise there’s growing anxiety about 2020 being potentially more devastating than 2019, when the world looked on in horror as billowing towers of smoke engulfed the world’s largest rainforest. But behind the smoke and past the headlines are powerful economic forces that, according to EII Executive Director Dan Nepstad, hold the key to Amazon's fate.

Nepstad spoke with Steve Levitt, host of the popular Freakonomics podcast, about how changing economic incentives can help preserve the Amazon rainforest and help the world avoid catastrophic climate change. 

Citing a 30% rise in deforestation across Brazil from the previous year, Nepstad says the loss of forest to activities such as cattle grazing—a key driver of deforestation in Brazil, as well as Colombia and to a lesser extent Peru—is a “great example of a market failure.” 

He notes, “Converting a 300-ton forest that would have 200 tree species and tons of unknown other species for a weak cattle pasture that will give you maybe 30, 50 kilos of beef a year, is one of the worst tradeoffs… in the world.”

Changing those incentives to increase the value of standing forests—by expanding market access to forest products, enhancing local fisheries, and leveraging the growing international carbon market—has long been Earth Innovation Institute’s focus.  

The key, Nepstad says, is having a “real financial proposition on the table” that compensates farmers and landholders for the income they lose by keeping forests standing.

Between 2005 and 2012 Brazil brought rates of deforestation down by as much as 80%, largely through enforcement measures that heavily penalized bad actors, in some cases restricting access to farm credit for entire counties that failed to tackle the problem. Despite its past success, Brazil received compensation for just 4% of of the emissions reductions it achieved by slowing Amazon forest clearing.

The recent rise in deforestation comes as the coronavirus pandemic continues to devastate regions of Brazil, including in the Amazon, which has some of the country’s highest poverty rates. The pandemic has also been blamed for the uptick in forest loss, bringing with it an increase in illegal activity as enforcement has fallen off. 

The haze that typically sets in during the August/September fire season, blanketing regions of the Amazon, poses an added threat that could exacerbate respiratory ailments brought on by the virus. 

The Amazon Rainforest covers a third of South America, is home to some 30 million people and holds roughly 10 years’ worth of global carbon dioxide emissions. Its loss would all but make it impossible for the world to avoid the worst consequences of climate change. 

Nicknamed the “tree killing ecologist” for past experiments that literally pushed Amazon trees to their limits, Nepstad has spent more than three decades researching the Amazon rainforest. He was joined on the show by Michael Greenstone, former chief economist for the Council of Economic Advisors under the Obama Administration, and Gretchen Daily, professor of biology at Stanford University and founder of the Natural Capital Project. 

You can read a transcript or listen to the full show here.