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A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application

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On average, U.S. farmers choose to apply nitrogen fertilizer at a rate that exceeds the ex post agronomically optimal rate. The technology underlying the yield response to nitrogen rewards producers who over apply in years when rainfall is excessive. The overapplication of nutrients has negative environmental consequences because the nitrogen that is not taken up by the plant will typically volatilize causing N2O emissions, or leach causing water pollution. We present a nonlinear offset program that induces farmers to reduce their nitrogen applications to the level that will be consumed by the plant in a typical year and, as a result, reduce N2O emissions from agriculture. The offset program is nonlinear because of the nonlinear relationship between N2O and nitrogen application rates. We assume that the farmer solves an expected utility maximization problem, choosing the optimal nitrogen application rate. The key contribution is a set of simulations that shows that modest offset payments will induce participation in the program and will have a significant impact on both expected and actual N2O emissions without having a significant impact on actual or expected yields. We also find that more risk-averse farmers will reduce emissions by a greater amount than less risk-averse farmers. Finally, we show the distribution of emission reductions induced by this nonlinear offset scheme.

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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 11-wp521.

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Date of creation: Apr 2011
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Handle: RePEc:ias:cpaper:11-wp521

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Web page: http://www.card.iastate.edu/
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Related research

Keywords: carbon offsets; nitrogen fertilizer; nitrous oxide; pollution; uncertainty. JEL Codes: Q12; Q18; Q51; Q53; Q54; D8;

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  1. Babcock, Bruce A., 1992. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers 10588, Iowa State University, Department of Economics.
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Cited by:
  1. Horowitz, John & Ueda, Kohei, 2013. "Paying Farmers to Reduce Nitrogen Application on Corn: The Baseline Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150561, Agricultural and Applied Economics Association.
  2. Garnache, Cloe & Merel, Pierre R., 2012. "Carbon market policy design: Investigating the role of payments aggregation," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124960, Agricultural and Applied Economics Association.

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