The Economics of Nitrate Pollution Control in UK

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The Economics of Nitrate Pollution Control in UK

• Nick Hanley

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The Economics of Nitrate Pollution Control in UK

• Nitrates in the environment
• Nitrate pollution as an externality problem
• Estimating the costs of controlling nitrate
  pollution
• Valuing the benefits of reductions in nitrate
  pollution
• Current UK Policy
• Conclusions and prognosis

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Nitrates in the environment

• Nitrogen is essential to plant growth.
• Nitrogen enters soil in a number of ways.
• Nitrogen is leached from soil by the action of
  water to rivers ,streams and groundwater.
• Nitrate leaching varies both seasonally and
  across crops.
• Organic nitrogen,soil microbes and nitrate
  leaching.
• Land use, rainfall and geology.

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Nitrates in the environment

• The general picture in southern and eastern areas
  of the UK.
• Why are upper limits recommended for nitrate in
  drinking water? Nitrate leaching gives rise to
  undesirable environmental side-effects .
• health problems
• eutrophication

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Nitrates in the environment

• Policy options for mitigating the side-effects of
  nitrate leaching.
• Options attempting to reduce the amount of
  nitrate entering the environment.
• Options attempting to remove nitrates once they
  are present in water courses.

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Nitrates in the environment

• The former category options include
• A reduction in inorganic nitrogen fertilizer
  applications.
• A reduction in animal manure applications
• Better management of nitrate applications.
• Changing the pattern of land use.

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Nitrate pollution as an externality problem

• Effect on utility functions.
• Effect on production functions.
• Optimality is not a policy option.
• Seeking ways of achieving given standards of
  water quality and (or) nitrate input limits at
  least cost.
• incentive-based control systems and uniform
  regulation.

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Estimating the costs of controlling nitrate
pollution

• This section reviews work on estimating the costs
  of achieving given reductions in nitrogen inputs
  or of achieving target nitrate concentrations in
  receiving waters.
• Studies concerned mainly with inorganic nitrogen
  fertilizer use
• Studies concerned mainly with nitrogen arising
  from livestock waste.
• Studies allowing for water treatment options.

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Inorganic nitrogen fertilizer use

• Linear programming
• Permits or taxes can achieve target reductions at
  a lower resource cost than uniform quantity
  restrictions.
• A tax regime , non-tradable uniform quotas and
  farm income.
• The price elasticity of demand for nitrogen
  fertilizer is a crucial parameter in price
  incentive based policies. The demand is fairly
  inelastic.

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Inorganic nitrogen fertilizer use

• Price-inelastic means that quite high tax rate
  are required to achieve significant nitrogen use.
• Dubgaard some conclusions
• Burrell nitrogen tax policies and cutting
  outside prices.
• England (1986)
• Losses in farm income will overstate the social
  cost of these policies.

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Inorganic nitrogen fertilizer use

• Distributional questions the key to
  understanding how public policy evolves.

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Nitrate emissions from livestock wastes

• Introduction
• Moffitt(1978) a tax and emission standards
• Sandiford(1984) tradable and non-tradable
  quotas tradable permit system and standard
  regulation.

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Allowing for water treatment options

• When does the treatment of high nitrate water
  become a policy option?
• Treatment options
• Croll and Hayes(1988)
• Horner(1975) to combine treatment with
  prevention
• De Haen comparison between the cost of the
  treatment and nitrogen fertilizer reduction
  options.
• The Hatton Catchment Study multi-sector
  policies.
• Study undertaken by ICI.

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Valuing the benefits of reductions in nitrate
pollution

• Excess nitrate levels lead to
• Eutrophication
• health risk
• Lower nitrate levels benefit
• commercial fishing activities
• recreational fishing activities
• human health

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The effect of nitrate pollution on commercial
fishing

• Silvander and Drake have done some work
• Nitrate Pollution and Fisheries Protection
• in Sweden

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The effect of nitrate pollution on recreational
fishing

• Little work has been done.
• Much work has been done on the value of
  recreational fishing ,using both travel costs and
  contingent valuation.

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The benefits of reductions concerning human health

• Measuring the benefits
• By calculating the value of avoided resource
  expenditure from reduced health care costs.
• By discovering individuals WTP to benefit from a
  reduction in the nitrate level.
• Two casesHaney(1989). Edwards(1988).
• CV

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Current UK Policy

• EC the 50mg/l upper limit.
• Directive 88(708) on nitrate pollution sets out
  further requirements for government action.
  (vulnerable zones)
• 4 million ha and 0.3 million ha, in East Anglia
  and the Midlands ,in UK
• Nitrate Sensitive Areas scheme
• 10 NSA(16400ha) , 9 intensive advisory
  campaign(24000ha)

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Current UK Policy

• Measures undertaken in UK
• In the nine advisory areas. No payments
• In the NSAs, a basic rate scheme and a premium
  rate scheme. Payment is standardized within NSA
  but varies across NSAs.

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Current UK Policy

• About payments
• Payments under both schemes are intended to
  reflect reductions in profits.
• For the basic rate scheme, profits reductions
  come about mainly from the costs of providing
  cover crops and lower yields from winter cereals.
• Per hectare payments decline under the premium
  rate scheme. Two reasons the least productive
  land is enrolled first the spreading of fixed
  costs.

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Conclusions and prognosis

• Two pointsacceptability or efficiency
  shadow prices or market prices
• Production function shifts
• Thoughts about treatment options.
• Lagged effect concerning the benefits of nitrate
  pollution reductions
• No general rule appliesblanket
  restrictions,tradable permits,nitrogen taxes,
  the use of protection zones and treatment.

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• Thats all.
• Thank you!