Tradeable nitrogen abatement practices for diffuse agricultural emissions: A ‘Smart Market’ approach
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Tradeable nitrogen abatement practices for diffuse agricultural emissions : A ‘Smart Market’ approach. / Hasan, Syezlin; Hansen, Line Block; Smart, James C.R.; Hasler, Berit; Termansen, Mette.
In: Environmental and Resource Economics, Vol. 82, 2022, p. 29–63.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Tradeable nitrogen abatement practices for diffuse agricultural emissions
T2 - A ‘Smart Market’ approach
AU - Hasan, Syezlin
AU - Hansen, Line Block
AU - Smart, James C.R.
AU - Hasler, Berit
AU - Termansen, Mette
N1 - Publisher Copyright: © 2022, The Author(s).
PY - 2022
Y1 - 2022
N2 - Markets in pollution permits for managing environmental quality have been advocated by economists since early 1970s as a mechanism that can deliver pollution reduction targets at lower cost to regulated entities than traditional uniform command-and control approaches. This study explores whether a ‘smart market’ cap-and-trade scheme between non-point sources can offer meaningful, robust and policy amenable, advantages over alternative approaches for nitrogen management in a realistic setting: 6504 individual farms in Limfjorden catchment, Denmark. The scheme involves multilateral trading of nitrogen emission rights among farms via changes in agricultural land management practices under a catchment-level cap on total nitrogen load. In this, the first exploration of non-point to non-point smart market nitrogen trading in a real setting, we estimate efficiency gains compared to uniform command-and-control regulation, explore the robustness of these gains in the face of non-participation, and reflect on farmers’ potential acceptance of the trading market in comparison with its command-and-control analog: spatially-targeted regulation, implemented via location-specific limits on nitrogen leaching. Results indicate that the smart market has the potential to substantially reduce the cost of meeting the catchment’s nitrogen reduction target. For a 21.5% reduction from baseline nitrogen load, the market delivers cost savings of 56% (DKK273 million, €36.6 million) compared to uniform regulation, with participating farms realising a mean net benefit of DKK 723/ha (€ 97/ha). Market performance is relatively robust against transaction cost; when delivering a 21.5% reduction in nitrogen load to Limfjorden, approximately 70% of the overall efficiency gain could be retained if only 24% of farms engaged with the market.
AB - Markets in pollution permits for managing environmental quality have been advocated by economists since early 1970s as a mechanism that can deliver pollution reduction targets at lower cost to regulated entities than traditional uniform command-and control approaches. This study explores whether a ‘smart market’ cap-and-trade scheme between non-point sources can offer meaningful, robust and policy amenable, advantages over alternative approaches for nitrogen management in a realistic setting: 6504 individual farms in Limfjorden catchment, Denmark. The scheme involves multilateral trading of nitrogen emission rights among farms via changes in agricultural land management practices under a catchment-level cap on total nitrogen load. In this, the first exploration of non-point to non-point smart market nitrogen trading in a real setting, we estimate efficiency gains compared to uniform command-and-control regulation, explore the robustness of these gains in the face of non-participation, and reflect on farmers’ potential acceptance of the trading market in comparison with its command-and-control analog: spatially-targeted regulation, implemented via location-specific limits on nitrogen leaching. Results indicate that the smart market has the potential to substantially reduce the cost of meeting the catchment’s nitrogen reduction target. For a 21.5% reduction from baseline nitrogen load, the market delivers cost savings of 56% (DKK273 million, €36.6 million) compared to uniform regulation, with participating farms realising a mean net benefit of DKK 723/ha (€ 97/ha). Market performance is relatively robust against transaction cost; when delivering a 21.5% reduction in nitrogen load to Limfjorden, approximately 70% of the overall efficiency gain could be retained if only 24% of farms engaged with the market.
KW - Diffuse pollution
KW - Land use
KW - Leaching
KW - Linear programming
KW - Simulations
KW - Water Framework Directive
KW - Water quality trading
U2 - 10.1007/s10640-022-00657-2
DO - 10.1007/s10640-022-00657-2
M3 - Journal article
AN - SCOPUS:85126538262
VL - 82
SP - 29
EP - 63
JO - Environmental and Resource Economics
JF - Environmental and Resource Economics
SN - 0924-6460
ER -
ID: 301140961