Cost-sharing Incentive Programs for Source Water Protection: The Grand River’s Rural Water Quality Program

Canadian provinces have become increasingly concerned with possible contamination of water from upstream agricultural activities. Many see watershed-based source protection, so called "source-to-tap" programs, as a means of improving water quality. A key factor in the success of these programs is the extent to which they provide incentives to farmers to undertake actions that ultimately result in a reduction of non-point source pollution. One type of program is cost-sharing whereby farmers are reimbursed for out-of-pocket expenses relating to best management practices which are expected to reduce runoff into water courses. Given increasing reliance on these types of programs, it is necessary from a public policy perspective to identify design features leading to the greatest likelihood of farmer participation. This paper examines Ontario’s Rural Water Quality Program for the Grand River using data from the first seven years of its operation, along with data from Agricultural Canada’s Farm Census, to model and estimate participation rates. Significantly positive determinants include: the maximum grant available and performance incentives, although both with diminishing returns. Projects with a one-time capital subsidy alone are much less likely to encourage participation than projects that combine a subsidy with a performance incentive.