The climate change bargaining game
On the eve of President Biden’s virtual environment summit, Brazil has approached the United States with an offer it can’t refuse.
The Wall Street Journal’s Paulo Trevisani and Timothy Puko reported on Wednesday that “Brazil’s government, widely criticized by environmental groups as a negligent steward of the Amazon rainforest, has made an audacious offer to the Biden administration: Provide $1 billion and President Jair Bolsonaro’s administration will reduce deforestation by 40%.” The Bolsonaro government suggests that this is the best way to incentivize residents of the Amazon to pursue economic activities that do not require, you know, burning the Amazon.
There are a couple ways of looking at this from the U.S. perspective. One is that this is the Coase Theorem in action. Brazil has property rights over the rainforest, and it is in U.S. climate change interests to pay the billion dollars to reduce deforestation by that much. Given the historical responsibility of the United States in contributing to global warming, this seems like a lot of bang for the buck. As NBC News’s Benjy Sarlin tweeted, this “seems like a bargain,” given the cost of domestic climate change initiatives.
Another way is that in agreeing to pay, Biden could be running into a moral hazard problem. The Bolsonaro government allowed Amazon deforestation to increase by 9.5 percent last year, a 12-year high. Paying the populist would just incentivize even more perverse bargaining behavior.