The Environmental Costs of Political Interference: Evidence from Power Plants in the Amazon

This paper estimates the impacts of ten recently built hydroelectric power plants in the Brazilian Amazon on deforestation. Using the inventory of all sites with undeveloped hydropower potential, we apply the synthetic control method to estimate the causal impact of each power plant on forest loss. Overall, the construction of the ten plants contributed to 13 percent of the observed forest loss within a 50-kilometer radius of the construction site. Notably, this impact is solely attributed to four plants. In at least three of these plants, construction licenses were granted despite technical recommendations against them. In contrast, the remaining plants, which received technical clearance from the environmental agency, have negligible effects. These findings highlight the effectiveness of robust environmental regulations and underscore their vulnerability to high-level political interference.