Conclusions

Most of the value of standing forests in Latin America is associated with their global services, most notably carbon retention and biodiversity. Unfortunately, despite the importance of these values, market signals have not embodied them. The consequence has been an under valuation of natural forests leading to rapid deforestation, particularly in areas that are more densely settled and more integrated with the market economy.

The current concerns about carbon emissions as a source of global warming may provide a unique opportunity for creating markets that would more fully recognize at least part of the social value of standing forests. In particular, the ongoing negotiations for setting limits to carbon emissions using tradable permits could become a great opportunity for Latin America to obtain large net economic benefits out of protecting its natural forests.

These gains can materialize if Latin America becomes fully involved in a trading system of carbon emission rights with the North. It is estimated that the net benefits for the region associated with its participation in carbon trading with the North could reach a present value of US$62 billion. The main reason for these large benefits is that reducing carbon emissions by decreasing deforestation is much cheaper than any other means available in the North.

The paper emphasizes that the participation of Latin America in carbon trading with the North should be conditional on the following:

1. In determining the carbon quotas by country all sources of carbon emissions, including deforestation, should be considered.

2. The principle of gradual convergence of per capita emission rights of the South and the North has to be accepted.

3. The carbon trading system needs to allow explicitly for the development of a quota rental market. This would dispel the fears of LDCs that, by selling their emissions rights, they would be seriously limiting their future growth potential. Additionally, if Latin America can lease its emission rights instead of selling them forever, this would also reduce concerns about its losing the least expensive abatement options.