The environmental effectiveness of alternative agri-environmental policy reforms: theoretical and empirical analysis

Abstract

This paper analyzes alternative agri-environmental policy reforms to reduce nutrient runoff when the government has price support, fertilizer tax, buffer zone subsidy and acreage subsidy as available instruments. To promote environmental goals, the government is assumed to adjust the tax and subsidy rates so as to keep the farmer's profits constant. This instrument switch reduces the prices of lesspolluting inputs and the farmer re-optimizes his production so that it becomes more environmentally friendly. The four alternative reforms under study are the following: a reduction of the producer price support or acreage subsidy compensated for by a higher buffer zone subsidy, and an increase in the fertilizer tax which is compensated for by either a higher acreage subsidy or a buffer zone subsidy. We show theoretically that although all reforms reduce the nutrient runoff, the last one is the most efficient. Our simulations show that at a 30 % abatement level of nitrogen runoffs all policy mixes decrease the average farmer's profits after the re-adjustment, if the end price is not allowed to increase due to decreased production. The smallest loss in the farmer's profits results from a policy mix which compensates for the higher fertilizer tax by a higher acreage subsidy.

Economic and environmental performance of alternative policy measures to reduce nutrient surpluses in Finnish agriculture

“…by Lankoski and Ollikainen 1999, Iho 2005and Helin et al 2006. However, the emphasis in these studies is in theoretical set-up and crop production and their results are not directly comparable to this study.…”

Marginal abatement costs for reducing leaching of nitrates in Croatian agriculture

“…It may be noted that direct comparison between the abatement costs for a fertiliser tax that are reported in this study and estimates by Lankoski and Ollikainen (1999) and Vatn et al (1997) is difficult. The reason is that those studies reported the costs of reduced leaching as an amount of money per area unit while the measure used in the present study is an amount of money per concentration.…”

“…These figures are averages from three different study areas in southeastern Norway and varied somewhat depending on the area. Lankoski and Ollikainen (1999) simulated a 30% reduction in N-leaching in their study of alternative agri-environmental policy reforms in Finland. They found that a fertiliser tax is less efficient in reducing N-leaching than a buffer-strip subsidy.…”

Sustainable Agriculture

“…The social abatement cost for Finnish fertiliser taxes, which are compensated for by an acreage subsidy, was estimated at FIM 24.7 (EUR 4.15) per abated kg N leaching using a Danish leakage function (the reduction in leaching was simulated to be 30%). According to the results, the use of buffer zones was a more cost efficient way to reduce leaching than fertiliser taxes (Lankoski and Ollikainen, 1999). In Norway, Vatn et al (1997) estimated the corresponding social marginal abatement cost to be about NOK 4/kg abated N leaching.…”