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Fiscal Transfers for Forest Cover
The costs of preserving forest cover are borne jurisdictionally, but the benefits accrue externally. To compensate for this, the national government has paid an annual forest grant to the states since 2005. We construct a model to show why it has not prevented a decline in cover in highly forested states over 2007–2019, while a rise is seen in states with low initial cover. The implications are explored.
The expansion of forest cover is among the globally accepted imperatives for the mitigation of climate change. Forests provide a wide variety of direct services like soil conservation, groundwater recharge, and preservation of biodiversity benefits that accrue to the immediate region surrounding the forest. But, the benefit of the most important service, the carbon sequestration that slows the march of the planet towards climate change, accrues well beyond the boundaries of the country where forests are located. However, the costs of maintaining land under forests are borne exclusively by the country in whose jurisdiction they lie.
This points to the need for external funding to correct the asymmetry between externalised benefits and internalised costs if forest cover is to be maintained or expanded as a global climate change mitigation strategy. The outcome will be a function of the cost of the preservation effort and the return on the effort (the grant).
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