Leakage Effects from Reforestation: Estimating the Impact of Agricultural Displacement for Carbon Markets

Reforestation is widely promoted as a nature-based solution for climate change, yet little attention is given to its potential unintended consequences: deforestation leakage, where agricultural activities are displaced rather than reduced. This study provides a empirical quantification of reforestation-induced leakage in Brazil, using panel data and spatial econometric models to estimate both the magnitude and geographic extent of displaced deforestation. We estimate 12% of deforestation leakage due to reforestation displacing agricultural areas, with effects propagating up to 150 km. We also test whether livestock intensification mitigates this spillover effect - without significant effects on offset leakage. Our results suggest that carbon credit accounting methodologies could improve their statistical evidence to avoid inflate or miscalculate net carbon benefits of reforestation projects. These findings have direct implications for carbon offset standards (e.g., Verra, ART-TREES) and the design of reforestation projects worldwide.