Commodities Prices and Deforestation in the Amazon Forest

• Grant number: 25/19380-5
• Support Opportunities: Scholarships in Brazil - Scientific Initiation
• Start date: October 01, 2025
• End date: September 30, 2026
• Field of knowledge: Applied Social Sciences - Economics - Fiscal and Monetary Policies
• Principal Investigator: Marco Antonio Cesar Bonomo
• Grantee: Lucas Kelles Melo Lage
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated research grant: 24/13435-0 - Identification and Propagation of Shocks in the Brazilian Economy, AP.R

Abstract

This study investigates the impact of commodity price shocks on deforestation in the Amazon and evaluates how anti-deforestation policies can be designed to mitigate these effects. We adopt a semi-structural approach based on Local Projections, identifying shocks to the prices of four key commodities using instrumental variables constructed from variations in futures contracts around narratively identified extreme weather events. We then implement a counterfactual policy analysis framework to simulate deforestation outcomes under alternative policy regimes. Our main contribution is to quantify the general equilibrium effects of commodity price shocks and environmental policies using a semi-structural approach that recovers these effects with fewer assumptions than fully structural models.