Evaluating Policy Options to Reduce N2O Emissions from US Agriculture

If emissions from a sector are unobservable, direct emissions policies are unlikely to be extended to this sector. However, alternative policies based on observable quantities may be able to reduce emissions from the unregulated source at costs similar to a first-best policy. This paper evaluates the costs of policy instruments for reducing GHG emissions from cropland agriculture, a large source of emissions that are unobservable, using an integrated biophysical and economic model. Results suggest that policies regulating readily observable quantities can reduce agricultural N2O emissions at costs approaching those of the unavailable emissions tax. However, alternative policies with costs similar to the emissions tax may have considerably different impacts on agricultural sector profit.