Modelling economic incentives to reduce nitrogen surpluses of Swiss agriculture in the agent-based model SWISSland

Abstract

Surplus nitrogen (N) risks being lost from agricultural systems and causing environmental N pollution in the form of ammonia (NH3), nitrate (NO3-) and nitrous oxide (N2O). These losses have remained at high levels for Swiss agriculture for decades. Agri-environmental goals will not be met without additional measures. Therefore, the question arises whether economic in- centives could be an option to mitigate N surpluses from Swiss agriculture. Economic incentives to reduce pollution are considered as cost efficient because they allow players to choose their means of reduction. Instruments that address reactive N release at their source are not an option because N pollution sources in agriculture are diffuse. Therefore, alternatives measuring units such as N surplus, can be a target of N policies. We simulated three different approaches that aim to reduce N surpluses of Swiss agriculture and its associated losses to the environment with the agent-based agricultural sector SWISSland model: • a levy on the N content of mineral fertilizers and concentrates (N levy) • an introduction of individual transferable quota (ITQ) • a food tax on meat and milk products. Our simulation showed that the effects of the N levy are low due to the low price elasticity of the demand for N inputs (-0.03) and the simultaneous reduction of N outputs with the reduction of N inputs. Results showed that the marginal abatement costs (MAC) for a N surplus reduction of 20% was 6 CHF per kg N. This is high compared to the cost of N inputs (1.63 CHF per kg N). A distribution of ITQ based on grandfathering would lead to equity issues because some heavy polluters would profit from trading due to low MAC. The associated reduction in N surpluses following the introduction of a food tax on meat and milk products of 17-65% is 2.3%. The low effectiveness of the food tax can be explained by the small reduction in consumption and contrasting effects of the prices on the MAC to individual model agents. The effectiveness of each of the examined economic incentives is too small to achieve the agri- environmental goals for NO3- concentration in water bodies or for NH3+ emissions. N pollution could not be effectively addressed by most of the uniform economic incentives due to a) low substitutability in production b) local effects of N pollution c) non homogeneous N pollution d) difficulties in allocating the environmental impact of N losses to the polluter. Therefore, further research is needed to develop solutions for the urgent N pollution problem that include social (e.g. changing consumption patterns), technical (e.g. increasing N use efficiency) and economic (e.g. green economy) potentials.