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Evaluation of Agri-Environmental Policies for Water Quality Improvement Accounting for Firm Heterogeneity

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Author Info

  • Graeme J. Doole

    () (University of Waikato)

  • Dan Marsh

    () (University of Waikato)

  • Thiagaragah Ramilan

    () (University of Melbourne)

Abstract

Policy makers worldwide are interested in the identification of cost-effective policy instruments to reduce diffuse pollution. A large economic model representing heterogeneous farms is used to evaluate a broad set of policies for reducing nitrate regulation within a large catchment dominated by dairy production. A policy instrument that allows the level of abatement to vary among producers according to differences in abatement cost is most cost-effective. The primary goal of 26 kg N ha-1 can be achieved at a cost of $15 ha-1 under this cap and trade policy, while a uniform cap on emissions for all farmers would be more than three times as expensive ($49 ha-1). In contrast, requiring uniform reductions in stocking rate, banning the application of nitrogen fertiliser, and land retirement perform poorly. These instruments are at least three times more costly than a cap and trade policy over all simulated reductions. Moreover, the differentiated policy does not greatly alter the distribution of farm profit, relative to what exists without regulation. The use of a large, complex economic model incorporating disaggregated farms provides unique insight into the economic benefits accruing to a differentiated policy.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/1113.pdf
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Bibliographic Info

Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 11/13.

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Length: 23 pages
Date of creation: 28 Jul 2011
Date of revision:
Handle: RePEc:wai:econwp:11/13

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Keywords: diffuse pollution; economic model; cap and trade policy;

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