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Deforestation: A Market Failure and Needed Solutions

This article is written by a student writer from the Her Campus at U Maine chapter.

There are an abundance of industries in our modern society that model market failure through negative environmental externalities. Deforestation is a phenomenon that represents the capitalist failure of the global economy prioritizing profit over biocentricity. 

According to the New York Times article “Tropical Forest Destruction Accelerated in 2020” by Henry Fountain over 10 million acres of primary tropical forest were lost in 2020. This article also discusses how all major tropical forest countries, such as: Brazil, Columbia and Cameroon, lead to an increase of 12% of deforestation from 2019 to 2020. Not only were forests burned for the basis of agricultural purposes (such as the production of palm oil and cocoa), but tree loss was also a consequence of global warming induced droughts that lead to extreme wildfires through the Amazon. The article also highlights how this great increase in deforestation is alarming considering “the global economy contracted 3 percent” yet forest loss increased by four times that rate. What is most concerning about this is global demand (and therefore prices) for palm oil fell drastically during the duration of the COVID-19 pandemic, making this loss of ecosystem even more wasteful. 

Deforestation, especially in the context of this article, provides profound negative environmental externalities due to market failure. Clear cutting and burning down tropical forests lead to soil erosion, desertification, increased greenhouse gas emissions, and loss of biodiversity and habitats. These are all negative externalities that contribute to the deadweight loss society faces from deforestation – not just in our own state, but the impacts linger from other hemispheres. If deforestation continues at this rate, the natural resources of our rainforests will be utterly depleted. The market failure that has led to deforestation is because of lack of intertemporal efficiency – meaning that current economic decisions for deforestation are leading and affecting the options and resources available for future generations.

A solution that comes to mind for me is implementing a policy similar to the Wetland Mitigation laws. However, as this is an international issue in which many developing countries own the forests in question, I realize creating and enforcing a global policy to protect rainforests would be difficult. In a perfect world, there would be policy in place that enforces the developer who clear cuts to replant the same amount and species of tree elsewhere in the forest. 

There should be a policy limiting clear cutting to a low number of acreage per year, and that the acreage lost must be replaced with consideration for wildlife. A solution like this could establish intertemporal efficiency in this market. Deforestation is one of many urgent market failures that are leading to a rise in greenhouse gasses. We need the rainforests to produce oxygen to combat the increase in atmospheric CO2. In conclusion, establishing intertemporal efficiency in this market would lead to a balance between the demand of the market and savoring the supply of natural resources that are vital to the environment. 

Hi! My name is Brooke (most call me Brooklyn) and I am a Staff Writer and UMaine Contributor for Her Campus, as well as the Social Media and Marketing Director. I am a third year majoring in Political Science and Economics with a minor in Climate Sciences. As a TA and tutor, I enjoy helping others. I love all things literature and GRLPWR so I am super excited to be apart of Her Campus! My instagram handle is @bccamire if you want more content!