Risk Indices for Economic and Water Quality Tradeoffs: An Application to Great Plains Agriculture

Abstract

Agricultural nonpoint source pollution is a multidimensional problem encompassing several forms of contaminants and several environments (e.g., surface water and groundwater). Environmental risk indices can account for differences in chemical attributes and aggregate environmental outcomes across several forms of contaminants and environments. The objective of this analysis is to develop three environmental risk indices and use the indices to compare the environmental risk and economic returns associated with alternative production systems in the Oklahoma Panhandle region of the Central High Plains. Three environmental risk indices are developed that incorporate different information concerning the environmental effects of pesticide use. The first index—the environmental impact quotient (EIQ)—incorporates only chemical properties into the environmental risk assessment, while the two other indices—chemical environmental index (CINDEX) and chemical concentration index (CONG) also factor in estimates of expected annual runoff and percolation loadings and concentrations, respectively. Both statistical and graphical comparisons indicate that the three indices provide similar rankings of alternative production systems based upon their potential environmental consequences. The CONC index is characterized by greater volatility than the other indices, and its rankings of the production activities are least correlated with those derived from the two other indices. Results suggest some potential for reduction in environmental risk without large reductions in net returns. Application of the EIQ index, which does not explicitly incorporate chemical loading or concentration estimates, provides the highest estimate of income reductions. Environmental risk can be reduced by the greatest amount without significant income losses when CONC is used as the risk measurement. Therefore, although the three indices generate similar rankings of alternative production activities, their application can provide very different estimates of the economic consequences of attaining environmental objectives. Research Question Agricultural nonpoint source pollution is a multidimensional problem encompassing several forms of contaminants and several environments (e.g., surface water and groundwater). Development of policies aimed at controlling nonpoint source pollution is often frustrated by the fact that adoption of practices aimed at controlling one pollution source may increase another form of pollution. One means of addressing this problem when evaluating production systems based upon their environmental consequences is to develop measures of environmental risk which aggregate environmental outcomes across contaminants and environments. The objective of this study is to develop alternative measures of environmental risk and use the measures to compare the environmental and economic effects associated with production alternatives in the Central High Plains. Literature Summary Several attempts have been made to develop environmental risk indices which account for differences in chemical attributes and aggregate environmental outcomes across several forms of contaminants and environments. Application of these indices allows agricultural practices to be rank-ordered based upon their composite environmental consequences. However, different measures of environmental risk emphasize different chemical and environmental attributes, and may imply different strategies for protecting water quality. Research is needed to refine these environmental risk indices and assess their usefulness in evaluating the economic consequences of achieving reductions in environmental risk. Study Description Three environmental risk indices are developed which incorporate different information concerning the environmental effects of pesticide use. The first index—the environmental impact quotient (E1Q)—incorporates only chemical properties into the environmental risk assessment, while the two other indices—chemical environmental index (CINDEX) and chemical concentration index (CONC) also factor in estimates of expected annual runoff and percolation loadings and concentrations, respectively. The indices are applied to rank the environmental risk associated with alternative wheat and corn production systems in the Oklahoma Panhandle of the Central High Plains. Environmental rankings of two sets of 64 alternative production systems are developed from each index and compared using graphical and statistical procedures. Expected net returns under each production system are estimated, accounting for differences in crop yields, input use, pesticide costs, and pesticide treatment efficacy. Environmental risk-cost frontiers are then developed, indicating the minimum cost of achieving incremental reductions in each environmental index. Applied Questions Do the three environmental risk indices yield similar rankings of alternative production strategies? Both statistical and graphical comparison of the three environmental risk indices indicate the indices provide similar rankings of 64 alternative production activities differing in terms of crop, soil type, irrigation system, irrigation level, and pesticide strategy. Even though EIQ does not explicitly incorporate chemical loading estimates, its rankings of alternative pesticide strategies are similar to CINDEX and CONC. The CONC rankings are least correlated with rankings derived from the two other indices. Comparison of the indices for 64 alternative pesticide strategies, holding crop, soil type, irrigation system, and irrigation level constant, gives a somewhat different picture. EIQ and CINDEX rankings show strong positive correlation, while CINDEX and CONC rankings have slight positive correlation. EIQ and CONC show no association between rankings. Is it necessary to incorporate estimates of chemical loadings or concentrations in the estimation of environmental risk indices? An important shortcoming of EIQ, and similar indices that do not incorporate chemical loading estimates in the risk assessment, is that their value is strictly a function of the chemicals used in the production system. The index value is not influenced by other features of the production system such as soil type, irrigation system, and irrigation level. Soil type, irrigation system, and irrigation level all significantly affect the values estimated for both the CINDEX and CONC indices. By incorporating percolation and runoff loadings and concentrations into their estimation, these indices do include the effects of nonpesticide elements in the risk assessment. Failure to include these features of production systems when quantifying environmental risk can lead to erroneous conclusions when ranking production systems that differ in terms of characteristics such as soil type, irrigation system, etc. Excluding these features can also affect estimates of the economic consequences of attaining environmental objectives. Do opportunities exist in the Central High Plains study region for reducing environmental risk without significantly reducing income? The results suggest some potential for reducing environmental risk without large reductions in net returns. These opportunities, however, differ significantly depending upon which indices are applied. Indices such as EIQ, which do not explicitly incorporate chemical loading or concentration estimates, provide the highest estimate of income reductions. Environmental risk can be reduced by the greatest amount without significant income losses when CONC is used as the risk measurement. Recommendation Potential exists in the Central High Plains region for reducing environmental risk without large reductions in agricultural income. These opportunities differ, however, depending upon the measure of environmental risk employed. Because of this, careful consideration of income-environmental risk tradeoffs should be made before policies aimed at altering pesticide use are implemented.