Tax Deductions and Conservation Easements

Abstract

Tax deductions and conservation easements are a financing mechanism for the conservation of tropical rainforests. As opposed to the more traditional approach where governments raise conservation finance through taxation, there is also the ability for local entities to utilize a tax deduction to raise conservation finance. Oftentimes, this use of a tax deduction for conservation purposes is for the establishment of a conservation easement or to encourage donations to an eligible nonprofit organization which has a conservation-related mission. The author presents an historical overview, provides more details on the mechanisms, presents 3 case studies, and then undertakes both a financial analysis and a policy analysis, along with a future outlook.

The 3 case studies are Brazil’s Forest Code and the creation of Legal Reserve Credits, the Naranjitos Conservation Easements in Guatemala, and the Yela Forest Conservation Easement.

Brazil’s Forest Code and the creation of Legal Reserve Credits are not a traditional conservation easement in the sense that the landowner receives a tax deduction. However, a landowner in Brazil may be eligible to effectively place a lien on their property and transfer the rights to the excess forest cover to another landowner who has a deficit in forest cover in exchange for compensation. The Naranjitos Conservation Easements in Guatemala is a successful example of structuring a conservation easement deal for 2 parcels known as the Naranjitos, which would become a part of the greater Maya Biosphere Reserve. The Maya Biosphere Reserve and the adjacent landscape known as the Selva Maya Initiative form the largest contiguous rainforest north of the Amazon. The Yela Forest Conservation Easement case study is another successful example of utilizing a conservation easement to help conserve tropical forests. In fact, this was one of the first conservation easements structured outside of the Americas, the easement has a unique feature that provides for perpetual financing, and the easement is helping to protect the largest remaining ka forest in the world.