Environmental quality is a public good. This means that it has characteristics making it unprofitable for the private sector to provide at socially optimal levels. A role of government can be to employ various policy instruments to promote the "production" of environmental quality. The policy instruments that can be used to provide incentives range from fully voluntary to regulatory and include:
U.S. conservation and environmental programs rely heavily
on these instruments.
Education
Education is a broad category of instruments aimed
at developing an information base and improving conservation
practices and program delivery. Research and data development
provides information on the economic, agronomic, and
environmental performance of production and conservation
practices. Extension and technical assistance transfer
this information to farmers through education materials,
demonstration projects, and face-to-face contact. In
USDA, these activities are undertaken by the Agricultural
Research Service; Cooperative
State Research, Education, and Extension Service; Economic
Research Service; Agricultural
Marketing Service; Forest
Service; and Natural
Resources Conservation Service.
Education by itself cannot be
considered a strong tool for protecting environmental
quality through conservation. The principle reason is that most of the environmental
benefits occur off the farm. Education is more effective for improving productivity
on the farm because the farmer can realize an economic gain. Education can,
however, be an effective tool for improving environmental quality under certain
conditions:
- The actions that improve environmental quality also
increase profitability (win-win),
- Producers have strong altruistic or stewardship motives,
and/or
- The onfarm costs of environmental impairments are
sufficiently large.
For example, conservation tillage increases net returns
for some producers while reducing soil erosion and improving
water quality. Other practices that can increase profitability
and environmental quality include nutrient management
and irrigation water management. Practices that improve
environmental quality without boosting profits, such
as filter strips and enhanced wildlife habitat, would
be less likely to be adopted voluntarily without financial
assistance.
Education's greatest value is as a component of an environmental
improvement policy that relies on other tools such as
financial incentives and direct regulation. One of the
lessons learned from USDA's
Area Studies Project is that education influences
which conservation practices a farmer adopts in order
to meet the requirements of program provisions such as
conservation compliance. By providing the information
producers need to implement existing and new practices
efficiently and also information about a producer's pollution
contributions, overall pollution control can be attained
at lower cost. USDA coordinates technical assistance
with financial incentives it provides for implementing
conservation practices through programs such as Environmental
Quality Incentive Program, Conservation Security Program,
and Conservation Reserve Program. USDA also provides
technical assistance to help farmers comply with Highly
Erodible Land and Wetland Conservation Compliance Provisions and
environmental regulations such as the Clean Water Act.
Government Labeling Standards
for Private Goods
Government labeling standards for private goods help
create efficient private markets for goods produced with
environmentally sound practices. National certification
standards increase the informational value associated
with specialized labels (e.g., labels for organic produce
or other "eco-labels"). If enough consumers
are willing to pay more for products grown in an "environmentally
friendly" manner, then more producers will switch
to these production practices. Participation is voluntary,
but producers must meet minimum standards to use specific
labels. USDA has set uniform national standards defining
the term "organic" for
both bulk and processed products. In recent years eco-labels
have been used to tout reduced pesticide use, wildlife
protection, and other environmental services tied to
specific agricultural production systems.
Financial Incentives
Financial incentive-based policies provide positive
monetary incentives (payments to farmers) designed to
encourage environmentally beneficial activities, or negative
incentives (taxes farmers pay) designed to discourage
environmentally harmful activities. Ideally, incentives
would be based on environmental outcomes. For example,
financial assistance for an erosion control practice
could be based on the amount that erosion is reduced.
Such performance-based incentives are the most economically
efficient. However, because of difficulties in measuring
environmental outcomes from conservation and production
practices, incentives are almost always based on specific
practices. Both positive and negative incentives create
an opportunity cost of engaging in environmentally harmful
activities. Therefore, both can be designed to produce
an identical environmental outcome, though the distribution
of economic welfare between farmers and taxpayers will
differ for each approach. In practice, only positive
incentives have been used by Federal conservation programs
to induce the voluntary adoption of conservation practices.
- Cost-share/incentive payments
pay farmers for voluntarily adopting and implementing
desirable conservation practices or land uses. Cost-share
payments are typically a percentage of the cost of
the practices (usually 50 to 75 percent for USDA financial
incentive programs), and are generally used for structural
practices, such as terraces or vegetative buffer strips.
Incentive payments are not necessarily based on costs,
but are set at a level necessary to get farmers to
adopt a practice. Typically, incentive payments are
used to encourage management practices such as nutrient
management, conservation tillage, or integrated pest
management. In some programs, incentive payments are
used to purchase easements that reduce pressure to
convert farmland to less desirable uses. Cost sharing
and incentive payments are available to farmers through
USDA's Environmental
Quality Incentives Program, Conservation
Stewardship Program, Grasslands
Reserve Program, and Wildlife
Habitat Incentive Program. The Farm
and Ranch Lands Protection Program provides matching
funds for the purchase of development rights to keep
productive cropland and rangeland in agricultural uses.
- Land retirement (or rental) payments are made to
farmers for voluntarily retiring land from production.
Current USDA land retirement programs include the Conservation
Reserve Program, and the Wetlands
Reserve Program. Land retirement payments are
generally more expensive on a per-acre basis than payments
for conservation practices on working lands, but can
produce large environmental benefits that are generally
long-term. Land retirement may therefore be most effective
when any type of crop production is generally incompatible
with environmental goals.
- Environmental taxes are per-unit charges for actions
contributing to environmental degradation. Charges
may be associated with emissions (such as a fixed dollar
value per pound of soil lost) or with input use (such
as a tax on fertilizer). Environmental taxes are not
currently being used in Federal conservation programs,
but are being used in some States and in other countries.
- Environmental
credit trading is an approach for reducing pollution
discharges that uses market forces to allocate pollution
control costs effectively between different pollution
sources. Water quality trading and wetland mitigation
are two examples. Traditional pollution control programs
often require individual sources of pollution to
meet a particular discharge limit, or to install
a specific type of pollution control technology.
Because individual pollution sources are not the
same, the cost each one faces in meeting similar
discharge goals is often very different. In a typical
credit trading program a regulatory agency issues
discharge allowances to all regulated dischargers.
The total number of allowances is equal to a discharge
cap set to achieve an environmental quality goal.
A discharger is required to have enough discharge
allowances to cover what it discharges over the course
of a year. If a firm does not have enough allowances
to cover its discharges, it must either purchase
allowances from other firms, or reduce excess emissions.
By allowing the trading of allowances, low cost firms
may find it to their advantage to reduce emissions
below their allowances and sell their excess credits.
High cost firms will purchase allowances from low
cost firms as long as the price of a credit is less
than their marginal cost of pollution control. Society
benefits because pollution reduction goals are achieved
at a lower total cost than if all dischargers were
required to actually reduce their own discharges.
Agriculture is generally believed to be able to reduce
pollution at a lower cost than most sources typically
regulated by U.S. pollution control laws (factories and
municipal water treatment plants, or point sources) for
those pollutants common to both, such as nutrients. Farmers
might be allowed to participate in a trading program
in order to provide a source of inexpensive offset credits
that point sources can purchase to meet their discharge
requirements. For example, farmers might produce nitrogen
credits by reducing nitrogen runoff using a comprehensive
nutrient management plan. If point sources are willing
to pay more for emissions credits than it costs farmers
to produce them (by cutting nutrient loss in this case)
then a trade can be made that allows farmers to benefit
financially. Point sources also benefit because they
pay less for pollution control than if they had to do
it themselves. Farmers would continue receiving these
payments for as long as they maintained the practices.
A major challenge for agriculture participating in trading
programs is the accurate measurement of pollution abatement
(needed to assign credits) associated with implementing
conservation practices. The regulatory agency overseeing
the program must establish an exchange rate between discharge
allowances and offset credits to account for uncertainty
and other factors (known as a trading ratio). For a more
detailed discussion of trading, see EPA's Water
Quality Trading Assessment Handbook.
Compliance
Mechanisms
Compliance
mechanisms require a basic level of environmental
compliance as a condition of eligibility for other
agriculture programs. This tool shares characteristics
with both government standards for private goods/actions
and economic incentives. It is similar to the former
in that the government establishes a set of approved
practices, except that here compliance is linked to
a direct economic payment. Because existing programs
are used for leverage, compliance mechanisms require
no new budget outlay for producer payments, although
considerable technical assistance is needed to develop
conservation compliance plans. Enacted at a time when
farm income support programs were more closely tied
to production, compliance mechanisms were used to remove
apparent inconsistencies between signals for more intensive
production (from the income support programs) and conservation
programs. Existing compliance mechanisms include the Wetland
Conservation (Swampbuster) and Highly
Erodible Land Conservation (Sodbuster and Conservation
Compliance) provisions.
Regulatory Requirements
Regulatory
requirements lie at the other end of the policy
spectrum from voluntary participation. Rather than
attempting to facilitate or encourage improved environmental
performance, policymakers can simply require it. Regulations
can ban the use of a particular input or practice deemed
a significant threat to public safety or the environment,
or can require the use of a beneficial practice. The
ban on the production and application of the chemical
DDT (through the Federal Insecticide, Fungicide, and
Rodenticide Act) is an example of the former. The Clean
Water Act regulations requiring the implementation
of a Comprehensive Nutrient Management Plan by concentrated
animal feeding operations (CAFOs) is an example of
the latter. Regulatory policies that can affect agriculture
include the Coastal
Zone Management Act Reauthorization Amendments
(for polluted runoff), the Clean
Water Act (for polluted runoff), the Federal
Insecticide, Fungicide, and Rodenticide Act (for
pesticide use), the Clean
Air Act(for airborne particulates), and the Endangered
Species Act (for wildlife habitat).
Application of Policy Instruments to U.S. Conservation
Problems
A taxonomy of policy instruments illustrates their application
to U.S. agricultural conservation issues. Three broad
groupings organize the instruments: involuntary measures
that are, to varying degrees, coercive; voluntary measures
providing varying amounts of financial incentive; and
facilitative measures that rely primarily on information.
Instruments are arrayed from left to right in the chart
in order of decreasing level of direct control the instrument
has on producer decisions. In other words, the more closely
prescribed the producer actions, the farther left a particular
instrument falls on the continuum.
Matrix of
Federal agricultural conservation/environmental
policy instruments and problems |
|
Instrument/participation |
Involuntary |
Voluntary |
Facilitative |
Regul- ation |
Conserv- ation
compli- ance |
Taxes |
Land retire- ment
|
Cost sharing |
Incentive payments |
Trading, banking, bonding* |
Education, technical assistance |
Problem |
USDA
program |
Erosion: soil productivity |
|
Sodbuster/ compliance
(1985) |
|
Soil Bank (1956-60) CRP
(1985) |
ACP (1936-96) EQIP (1996) |
CSP (2002)
EQIP (1996) |
|
CTA (1936)
CEP (1914) |
Erosion: sediment- ation |
CZARA (1990) |
Sodbuster/ compliance (1990) |
|
CRP (1990) |
ACP (1936-96) EQIP
(1996) |
WQIP (1990-96)
EQIP (1996)
CSP (2002) |
|
CTA (1936)
CEP (1914) |
Erosion: airborne dust |
CAA (1970) |
Sodbuster/ compliance (1990) |
|
CRP (1996) |
ACP (1936-96) EQIP
(1996) |
WQIP (1990-96)
EQIP (1996)
CSP (2002) |
|
CTA (1936)
CEP (1914) |
Wetlands |
CWA Section 404 (1972) |
Swamp- buster (1985) |
|
Water Bank (1970-95) CRP (1988)
WRP (1990) EWRP (1993) |
|
|
Mitigation banking (1995) |
CTA (1936)
CEP (1914) |
Water quality: nutrients |
CWA Section 402 (2003) |
|
|
CRP (1996) |
EQIP (1996) |
WQIP (1990-96)
EQIP (1996)
CSP (2002) |
CWA (1990) |
CTA (1936)
CEP (1914) |
Water quality: pesticides |
FIFRA (1947) CZARA (1990) |
|
|
CRP (1996) |
EQIP (1996) |
WQIP (1990-96)
EQIP (1996)
CSP (2002) |
|
CTA (1936)
CEP (1914) |
Wildlife habitat |
ESA (1973) |
|
|
CRP (1996) GRP (2002) |
WHIP (1996) |
EQIP (1996) CSP (2002) |
Conserv- ation banking (2003)
Eco- labeling |
CTA (1936)
CEP (1914) |
Acronyms:
ACP—Agricultural
Conservation Program
CAA—Clean Air Act
CEP—Cooperative Extension
CRP—Conservation Reserve
Program
CSP—Conservation Security
Program
CTA—Conservation Technical Assistance
CWA—Clean
Water Act
CZARA—Coastal Zone Act Reauthorization
Amendments
EQIP—Environmental Quality Incentives
Program
ESA—Endangered Species Act
EWRP—Emergency
Wetland Reserve Program
FIFRA—Federal Insecticide,
Fungicide, and Rodenticide Act
GRP—Grassland Reserve Program
WHIP—Wildlife Habitat
Incentives Program
WQIP—Water Quality Improvement
Program
WRP—Wetland Reserve Program
*Trading relies
on regulatory measures to create a market. However,
agriculture's participation is currently voluntary. |
The evolution of environmental concerns is echoed in
the rows of the matrix, with the initial concerns about
soil productivity losses from erosion occurring in the
top rows, and more recent concerns (such as nitrogen
leaching and manure management) appearing in the bottom
rows. The approximate dates that specific policies were
first applied to an environmental concern are indicated
in the body of the matrix. Some of the programs listed
have been phased out or combined with other programs.
For example, the functions of the Agricultural Conservation
Program and the Water Quality Incentive Program were
taken over by the Environmental Quality Incentive Program
in 1996.
Policymakers have at their disposal policy instruments
that can induce changes in agricultural practices and
technologies that lead to more sustainable agro-environmental
systems. No general statement can be made about which
policy instruments meet program goals in the most efficient
or cost-effective manner. And within each broad policy
tool grouping, implementation decisions can have significant
impacts on program costs and environmental impacts. In
addition, the characteristics of agriculture's impacts
on environmental resources vary widely across regions
and resource bases. The choice of policy instruments
depends on the nature of the resource issue or problem,
the information available to the administering agency
on the linkages between farming activities and the environmental
resources, farm economics, and societal decisions about
who should bear the costs of providing more sustainable
production systems.
|