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Paying Farmers to Reduce Nitrogen Application on Corn: The Baseline Approach

  • Horowitz, John
  • Ueda, Kohei
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    We model a simulated green-payment policy to reduce nitrogen application on corn. In contrast to other papers, we recognize that the farm’s business-as-usual application rate cannot be known by the policymaker. We develop a structural model and data-driven approach to address this issue. We find that only one-third of the credits that would receive payments would be additional nitrogen reductions. The substantial volume of non-additional “reductions” leads the effective payment rate to be 3.5 times the price paid by the simulated policy. We discuss a further eligibility criterion that can improve policy performance.

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    File URL: http://purl.umn.edu/150561
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    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150561.

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    Date of creation: 2013
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    Handle: RePEc:ags:aaea13:150561
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    1. Ruben N. Lubowski & Andrew J. Plantinga & Robert N. Stavins, 2008. "What Drives Land-Use Change in the United States? A National Analysis of Landowner Decisions," Land Economics, University of Wisconsin Press, vol. 84(4), pages 529-550.
    2. Marshall, Elizabeth P. & Weinberg, Marca, 2012. "Baselines in Environmental Markets: Tradeoffs Between Cost and Additionality," Economic Brief 138922, United States Department of Agriculture, Economic Research Service.
    3. Robert Finger & Werner Hediger, 2008. "The Application of Robust Regression to a Production Function Comparison – the Example of Swiss Corn," IED Working paper 08-02, IED Institute for Environmental Decisions, ETH Zurich.
    4. Fell, Harrison & Burtraw, Dallas & Morgenstern, Richard & Palmer, Karen, 2011. "Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost," Discussion Papers dp-10-01-rev, Resources For the Future.
    5. Ribaudo, Marc & Delgado, Jorge & Livingston, Michael J., 2011. "Preliminary Assessment of Nitrous Oxide Offsets in a Cap and Trade Program," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(2), August.
    6. Richard D. Horan & Roger Claassen, 2007. "Targeting Green Payments under a Budget Constraint," Land Economics, University of Wisconsin Press, vol. 83(3), pages 319-330.
    7. Ribaudo, Marc & Ghosh, Gaurav S. & Shortle, James S., 2009. "Do baseline requirements hinder trades in water quality trading programs?," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49258, Agricultural and Applied Economics Association.
    8. Rosas, Juan (Francisco) & Babcock, Bruce A. & Hayes, Dermot J., 2011. "A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application," Staff General Research Papers 33818, Iowa State University, Department of Economics.
    9. Mariano Mezzatesta & David A. Newburn & Richard T. Woodward, 2013. "Additionality and the Adoption of Farm Conservation Practices," Land Economics, University of Wisconsin Press, vol. 89(4), pages 722-742.
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