Costs of P Reductions in Lake Erie. Brent Sohngen Professor, Dept of Agr., Env., and Dev. Economics

Issues to address How did we get here? Factors that encouraged the buildup of legacy P Assessment of the costs of reducing P emissions through the application of BMPs in the Western Lake Erie Basin Build from Scavia et al. (2017) Policy assessment.

How did we get here? Developed a model that reconstructs P accumulation in NW Ohio agricultural systems from 1960 to present – driven by economic incentives. Allows for an assessment of crop yields (corn, soybean, wheat), farm profits, soil P profile, P application, P emissions to river and lake system. Model controls P applications, P levels in soils, crop type, conservation tillage, and cover crops Social Optimal = Assessment of P application rates when damages from sediments and HABs are considered by society Farmer Optimal = Assessment of what farmers would do without considering the damages in rivers, streams and Lake Erie. Estimates by Shaohui Tang, Unpublished PhD Thesis, AED Economics, 2018

P Applications Soil P Stocks Soluble P

Initial Policy Implications Damages of P emissions from 1960 to present amount to about $114 per acre (cumulative), and around $8.25 per acre per year. We over applied by 20-40% over the last 50 years. E.g., Tri-State recommended fertilizer rates have consistently been too high (critical level set too low) because they considered only farmer yields and profits. Conservation tillage should be reduced 10-15% in the basin. Cover crops are expensive and do not enter the solution for the social optimal.

Looking forward – what practices can we use Assess policies and practices in Scavia et al. (2017) This study used a detailed SWAT model to assess how implementation of various policies would achieve a 40% reduction in P loading. We looked at the ones that worked: Remove farmland Implement practices like cover crops, conservation rotation, riparian zones, nutrient management planning. Change equipment

Looking forward – what practices can we use Assess policies and practices in Scavia et al. (2017) Developed a model that balances inputs and outputs of phosphorus in the soil systems of NW Ohio, accounting for crop uses, nutrient cycling in soils during the year, various conservation practices Cover crops Subsurface placement Residue management Land removals (e.g., CRP) Calculates both direct costs and opportunity costs. Intertemporal: Assume implementation of various programs over 10 years.

Soluble P Emission – How quickly can we achieve the target Estimates by Shaohui Tang, Unpublished PhD Thesis, AED Economics, 2018

Costs for Maumee Basin – Total $/yr Scenarios from Scavia et al. (2017) Million $/yr Remove land: 50% to conservation $289.7 Subsurface Placement + Cover Crops, Riparian Zones $71.0 Subsurface Placement on 50% of acres $49.9 Subsurface Placement + 50% P reduction $47.3 P Tax, Subsidy or Trading $10.4 - $20.1 Estimates by Shaohui Tang, Unpublished PhD Thesis, AED Economics, 2018

Costs for Maumee Basin – $/ac/yr Scenarios from Scavia et al. (2017) Remove land: 50% to conservation $80 Subsurface Placement + Cover Crops, Riparian Zones $20 Subsurface Placement on 50% of acres $14 Subsurface Placement + 50% P reduction $13 P Tax, Subsidy or Trading $3-$6 Estimates by Shaohui Tang, Unpublished PhD Thesis, AED Economics, 2018

Some other factors do influence costs. Need >50% adoption of most practices to achieve the 40% reduction. Have 60% in residue management, but that’s usually temporary. Only 3% in CRP, and 1-2% in cover crops. Farmer behavioral response: In a voluntary program, if farmers need assurances about whether the practices will work, costs will rise. Two issues: Do practices work on “my” farm and will enough of my neighbors also join this program and do what they say they are going to do? Uncertainty in weather, climate, BMPs, etc. raises costs to achieve a 40% reduction by 15-40%.

How much do we spend now? The three biggest federal programs (CRP, EQIP, CSP) have spent over $32 million per year in the counties of the Maumee watershed, or around $9/ac/yr, in the last 5 years. Conservation rotation/tillage Nutrient management plans Cover crops

Policy Implications Enormous variance in costs, which depend directly on how we implement the policies ($3 to >$80 per acre per year). These are all lower bounds on costs because they do not include transactions costs or government inefficiencies. The cheapest and most successful approaches suggest that we would have to re-tool our approach with federal $$. No cover crops or conservation rotation (save $2-$4 million/yr). Pay for subsurface placement ($15-$20/ac/yr) Pay for eliminating P applications for 3-5 years ($10-$15/ac/yr). Interaction with other Farm Bill programs is important. Crop insurance programs may make it difficult for farmers to reduce P applications.

Why do we spend so much and seemingly get so little Why do we spend so much and seemingly get so little? What does this suggest about our ability to reduce P in the future? Maumee Maumee Heidelberg WQ Lab data Heidelberg WQ Lab data

Leaky System Kim et al. (2017)

Markets changed

Accounting for markets, seasonality and other factors… Attached P down 43% since 1995 while soluble P up by 113% Attached P down 18% since 2010 while soluble P down by 53%

What about weather? Prices + Weather + Other = Total Kim et al. (2017)

Conclusions/Policy Recommendations The 40% P reduction does pass a benefit cost test, but only if we can keep the costs lower than $10 per acre per year. The system is heading towards less P emission, accounting for markets, weather, and other factors, but the current trajectory does not appear to be enough to meet the 40% goal. Spending more is not the only answer. We are already spending >$8 per acre per year and it’s not solving the problem. Some things we subsidize could be eliminated (conservation tillage/rotation and cover crops) The things that likely work best cannot be directly subsidized by the federal government (subsurface placement and reduced use). The things that can be subsidized do provide benefits (e.g., CRP), but it’s too expensive to do them everywhere. Market instruments, such as P charges, P subsidies, or P trading, have the potential to drastically reduce costs for farmers and for society.