Hydropower dams, deforestation, and land use change: Evidence from Brazil

In Brazil, hydropower generates more than 60% of the national electricity supply, placing the country among the most hydropower-dependent economies worldwide. This study analyses the causal impact of dam construction on forest loss using a new municipality-level panel dataset covering 379 hydropower projects, combined with high-resolution satellite data on forest cover and land use. Applying modern staggered difference-in-differences estimators robust to heterogeneous treatment effects, we find that dam construction and operation reduce municipal forest cover by nearly 10% relative to the mean, with losses accumulating steadily after construction and driven primarily by cropland expansion. Impacts are concentrated in the North and Northeast and are amplified in municipalities with large shares of public land and insecure property rights. Higher pre-construction enforcement intensity reflects prior deforestation pressure under the PPCDAm targeting framework rather than institutional strength. We also document significant spatial spillovers, with dam-induced deforestation extending to neighboring municipalities at roughly 40–50% of the direct effect, implying that administrative boundaries systematically understate the total environmental footprint of hydropower expansion. These findings highlight that while hydropower contributes to energy security, it entails substantial environmental costs requiring stronger land governance and watershed-scale environmental assessment.