Inferring the Effects of Nitrogen Management Policies Using a Fully Calibrated Programming Model of California Agriculture

Executive summary: Our work addresses ex ante policy evaluation as it relates to nitrogen management in agriculture, in particular the reduction of nitrogen losses from field crops. We build a bio-economic model of crop production at the regional scale to predict the effects of nitrogen-related policies on agriculture and the environment. The model is calibrated against economic data on observed crop acreages and yields, as well as predetermined supply responses. In addition, crop-specific production functions are calibrated to exogenous agronomic information on yield responses to nitrogen and irrigation. Environmental outcomes are tracked using the biophysical model DAYCENT. The model is applied to the study of a nitrogen tax in Yolo County, California, intended to mitigate non-point source nitrogen pollution from field crops. At low tax levels, the behavioral and environmental responses to the nitrogen tax appear to be largely due to the reduction in fertilizer use and irrigation on each crop. However, as the tax level increases, reductions in input intensities start to level out due to unfavorable yield effects, and acreage reallocation among crops begins to play a sizable part in the total response. From a methodological standpoint, our study illustrates the need to accurately model input intensity adjustments in regional models of crop supply intended for agri-environmental policy analysis. From a policy standpoint, our study shows that sizable reductions in nitrogen application, and attendant reductions in nitrogen losses, can be achieved at the regional scale at a moderate social cost. Overall, the induced reduction in nitrate leaching appears larger than the reduction in nitrous oxide emissions.