Site-Specific Simulation of Nutrient Control Policies: Integrating Economic and Water Quality Effects

Abstract

A watershed-based modeling system is developed to assess alternative nutrient abatement policies, including fertilizer taxes, application caps, and uniform reductions. A microeconometric model of nutrient use is estimated using farm-level data, prices, and spatially detailed soil and land characteristics. Results are interfaced with a physical watershed model to predict water quality changes. Simulations demonstrate differences in water quality effects across policies. For nitrate loads at the watershed outlet, an application cap provides slightly superior performance for small reductions, but a tax is more efficient under larger reductions. Phosphorus reductions at the sub- watershed level vary but provide information about policy tradeoffs. Worsening surface water quality is an important and multifaceted issue encompassing problems such as hypoxic zones, fish kills, drinking water concerns, and diminished recreational opportunities. While regulating industrial and municipal point sources of water pollution has become common, non-point or diffuse sources, including agricultural sources, remain relatively uncontrolled. Agriculture's primary non-point source contribution to water quality problems is the use of fertilizers in the crop production process. Of the common fertilizer components, nitrogen and phosphorus are major nonpoint causes of impaired waters throughout most of the United States (U.S. Geological Survey, 1999). Public policy has yet to effectively address many of the concerns related to nonpoint source pollution and government bodies struggle to find the means to achieve changes in related pollution. Many of the difficulties associated with policy implementation arise from the need for solutions tailored to a specific watershed. This aspect of the problem is most acute in areas where a large proportion of water body impairment is due to nonpoint sources of pollution; each area has a unique distribution of nonpoint source pollutants that degrade water quality. The goal of this study is to develop a framework for assessing policies designed to improve water quality in a given watershed; here, the Raccoon River watershed in Iowa. This watershed experiences some of the highest nitrate concentrations in the country and contains a number of nutrient-impaired lakes and waterways. Policy assessment requires examination of tradeoffs between water quality improvement and impact on net returns for farm operators. Policies examined here include a tax on each nutrient, a per-acre application cap, and a uniform reduction in application levels, following common policy options discussed by Griffin and Bromley (1982), Helfand and House (1995), and Shortle and Horan (2001). The analysis is conducted via the development and application of two complementary modeling frameworks. The first is a production model used to determine fertilizer input choice and farm net-return response to policy implementation. The second is a physical model, the Soil and Water Assessment Tool (SWAT), which predicts watershed-wide effects of changing