Comparing the cost-effectiveness of delivering environmental benefits through subsidies to farmers vs land purchase

Abstract

Action to address biodiversity declines and climate change must be taken on farmland which covers half of all habitable land on Earth. European governments have predominantly invested in agri-environment schemes (AES) which pay farmers to change their management to the benefit of the environment. We conducted the first UK-based comparison of the cost-effectiveness of this approach with an alternative strategy of land purchase where organisations are contracted to manage government-owned land for nature. We took a novel approach to estimating the costs of paying farmers in an AES to create and manage habitat using results from a choice experiment conducted amongst 118 arable farmers in England. We estimated the costs of land purchase, and its subsequent management, based on the literature. Given equal annual spend, we estimated the benefit delivered by each strategy for a suite of environmental outcomes (bullfinches, lapwings, yellowhammers and climate mitigation) and explored how relative cost-effectiveness varied with budget, discount rate and timescale. We found AES were more cost-effective if budgets for environmental policies do not increase and where the environmental outcome is expected to decline rapidly without action in the next 50 years. However, if budgets were to increase considerably to reflect the scale of the biodiversity and climate crises, land purchase would deliver more biodiversity and climate mitigation in the longer term. The cost-effectiveness of the land-purchase strategy was sensitive to fluctuations in land prices which presents a challenge to policymaking which also must consider the impacts on farming communities of large-scale changes in land ownership.