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

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Abstract

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.

Suggested Citation

  • Francisco Rosas & Bruce A. Babcock & Dermot J. Hayes, 2011. "A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application," Food and Agricultural Policy Research Institute (FAPRI) Publications 11-wp521, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  • Handle: RePEc:ias:fpaper:11-wp521
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    References listed on IDEAS

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    1. Babcock, Bruce A., 1992. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers Archive 10588, Iowa State University, Department of Economics.
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    Cited by:

    1. Garnache, Cloé & Mérel, Pierre R. & Lee, Juhwan & Six, Johan, 2017. "The social costs of second-best policies: Evidence from agricultural GHG mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 39-73.
    2. Claassen, Roger & Duquette, Eric & Horowitz, John & Kohei, Ueda, 2014. "Additionality in U.S. Agricultural Conservation and Regulatory Offset Programs," Economic Research Report 180414, United States Department of Agriculture, Economic Research Service.
    3. repec:wsi:ccexxx:v:05:y:2014:i:02:n:s201000781450002x is not listed on IDEAS
    4. 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.
    5. Garnache, Cloe & Merel, Pierre R. & Lee, Juhwan & Six, Johan, 2014. "Markets for Agricultural Greenhouse Gas Offsets: The Role of Policy Design on Abatement Efficiency," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170718, Agricultural and Applied Economics Association.
    6. Horowitz, John K. & Just, Richard E., 2013. "Economics of additionality for environmental services from agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 105-122.
    7. 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.

    More about this item

    Keywords

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

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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