Combining nature-based solutions and green taxes for transformative agri-environmental policy: the case of riparian buffers in Uruguay

Riparian buffer zones (riparian buffers) are vegetated areas adjacent to surface watercourses and have been used around the globe as a Nature Based-Solution to reduce diffuse agricultural nutrient pollution and its negative effects in water quality (Cole et. al, 2020, Collins, et. al. 2009) . They also provide many important ecosystem services such as flood protection, carbon sequestration, water temperature regulation and habitat provision for plants and animals of land and water ecosystems (Riiss et. al., 2020). In the context of agricultural watersheds, an increase in the area of riparian buffer zones reduces the area for conventional agricultural production (e.g. livestock and crops) but it increases the provision of ecosystem functions that benefits the society as a whole. Such is the case of nutrient retention function of riparian buffers. As a result, the areas located near water courses present a trade-off between the private (farmers and landowners) and public (society) interest (Buckley et. al., 2012, Naidoo, et. al., 2006, Sparovek et. al., 2002). In this regard, buffer zones can be conceptualized as a public good that benefits society as a whole -by improving or preserving water quality- and, at the same time, imply opportunity costs of forgone agricultural production. The most common way of implementing riparian buffers is by mandatorily defining specific margins along water courses in which certain farming and herding practices are prohibited (Buckley et. al, 2012). Although this approach is relatively easy and straightforward to implement for governments, it has two main disadvantages. The first disadvantage is that from the societal point of view the measure can be unfair, since it punishes farmers near water courses whether or not they are responsible for the water pollution problem. The second disadvantage is that mandatory top-down approaches can also crowd out the intrinsic motivation of farmers for implementing them and generate negative impulses (e.g., aversion to responsibility and incompliance) towards water quality issues (Thomas et.al., 2019; Barnes et. al., 2013). One possible solution to this problem is to create a Payments for Ecosystem Services (PES) scheme funded by green taxes on fertilizer with earmarking for riparian buffers. This scheme has three advantages. Firstly, by being voluntary, it may reduce the crowding out effects of mandatory measures on farmers attitudes towards environmental issues. Secondly, it helps to reduce fertilizer overapplications and the amount of nutrients exported form farms (UNEP, 2020; Failde, et. al.,2015). In addition, it creates a funding mechanism that burdens the cost of intervention on fertilizers’ consumers who are generally considered as one of the main responsible for nutrient pollution in the context of agricultural watersheds (Liu et. al., 2020). Hence, it might be seen as a fairer mechanism than the mandatory approach. Although riparian buffers and fertilizer taxes have been extensively analyzed in the scientific literature as separated measures, there is little or no research that compares both as alternatives or complements for reducing nutrient pollution. Moreover, Liu et. al. (2020) analyze the use of a tax on fertilizer for funding an agricultural best management practices program, but this has not been done for the case of riparian buffers. In light of this, this paper has two objectives. The first is to analyze the compared cost-effectiveness of riparian buffers and tax on fertilizer as alternative and/or complementary measures to reduce nutrient exports to watercourses. The second objective is to determine the maximum riparian buffer area that can be funded with a revenue-neutral tax on fertilizer for a case study basin. This study focuses on the case of Santa Lucia River Basin in Uruguay. This basin represents 8% of country area and provides drinking water for more than half of the country’s population (Barreto et. al., 2017). Since 2015, the environmental authorities implemented a mandatory riparian zone scheme that is under revision (MVOTMA, 2018, 2015). To achieve the research objectives we use a combination of coupled biophysical and economic models -also called Integrated Assessment Models (IAM)- with public information available from secondary data sources. For estimating riparian buffers cost-effectiveness, we use the Soil and Water Assessment Tool (SWAT) model, that simulates the impacts that changes in agricultural practices have on water quality indicators over long time periods (Neitsch et. al., 2011). This model is calibrated based on local information of water quality, soil characteristics, climate, land uses and agricultural practices in the watershed. Moreover, we estimate the opportunity cost of implementing riparian buffers based on land rent prices, combined with soil and land use and cover maps (MGAP, 2021). For the case of tax on fertilizers, we build the fertilizers demand curve based on temporal series of prices and consumption at national level. This allows to estimate changes in fertilizer use after tax as well as the tax revenue and tax burden. Furthermore, the effects of the tax on nutrient export reduction are simulated with SWAT by changing the inputs of fertilizer after tax at farm level. In the light of the above, we can compare vis-a-vis two very different interventions with the same target, and explore the complementarity when both are combined in a PES scheme. Riparian ecosystems have been historically transformed and degraded and are identified as highly vulnerable to climate change in the absence of adaptation (Capon et. al., 2013). In the context of the Ecosystem Restoration Decade declared by the UN, our research will bring valuable information for designing riparian buffer zones as a nature-based solution to improve water quality in agricultural watershed. Furthermore, it will contribute to the evaluation of the current and future riparian buffer zone interventions in Uruguay and the region.