Economic aspects of policies to control nitrate contamination resulting from agricultural production

The paper discusses the basic welfare problem of various nitrogen pollution control policies. It is suggested that the relative cost advantage of investment in water treatment as compared with controls on agricultural production depends on the geographical extension of the contamination, on the level of the required nitrate limit and on the related tradeoffs between environmental and agricultural policy goals. Since pollution control should be, if economically feasible, origin-oriented, agricultural policy measures require particular consideration. Three types of policy instruments are evaluated qualitatively, namely persuasion and extension, economic incentives and mandatory policies. The paper comes to the conclusion that there is a need for certain region-specific nitrogen control measures, especially for those giving priority to improved, i.e. less contaminating, farming practices which lie in the economic self interest of farmers. Moreover, environment benefits should also be taken into account in discussions of overall reforms of the Common Agricultural Policy. Yet it is premature to propose explicit nitrate control policies on a sector wide scale as long as uncertainties with respect to their technical and welfare implications prevail.