Evaluation of Agri-Environmental Policies for Water Quality Improvement Accounting for Firm Heterogeneity
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.
|Date of creation:||28 Jul 2011|
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- Basset-Mens, Claudine & Ledgard, Stewart & Boyes, Mark, 2009. "Eco-efficiency of intensification scenarios for milk production in New Zealand," Ecological Economics, Elsevier, vol. 68(6), pages 1615-1625, April.
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