From sector specific nitrogen policies to a common individual transferable quota system - Sector and Macroeconomic Implication

In 2003, The Water Framework Directive (WFD) was implemented into legislation in all EU countries. The aim of the WFD is to achieve “good ecological status” for all water bodies by 2015 and no later than 2027. Measures differ among Member States (MS), but common to most MS are that individual sectors are governed by individual policies, not taking into accounts that the marginal abatement cost between producers in all sectors governed by these individual policies should in principle be equal to reach an economically optimal regulation practice. In this paper, we will analyze the policy targeting nitrogen leaching from agriculture and aquaculture and the overall as well as sector specific economic consequences of introducing an individual transferable nitrogen leaching quota system (ITQs) covering both sectors. The empirical analysis is carried out with Denmark as a case. In Denmark, the first policy measures targeting leaching of nitrogen was introduced in 1985 subsequently followed by numerous policy initiatives, The main focus has naturally been on agriculture as the sectors contributing the major part of total leaching (currently 70%), point sources contributes 12 percent, among these are aquaculture with a contribution of 1.8 per cent of the total leaching. The remaining 18 percent is contributed from nature (non man-made contribution). In agriculture nitrogen leaching is caused by usage of manure and fertilizer whereas aquaculture contribution origins from the use of feed through discharges directly in water bodies. For agriculture, a broad range of policy measures has been implemented in the period since 1985, some targeting higher utilization of manure and fertilizer, buffer zones along inland water courses etc. A nitrogen-norm system has also been introduced effectively limiting the amount of nitrogen farmers can supply to the field. On average, the farmers are currently using manure and fertilizer at a level 15 per cent below their economic opti...