Approaches to Curtail the Production of Environmental Bads by the Agricultural Industry 1) Performance Based 2) Design Based 3) Market Based 4) Liability

Performance Based Economic – simply taxes on H20 quality  must monitor run-off so farmer consider pollution in costs  With current technology not feasible Standards – regulations placed on observable out comes of polluters decisions  Too complex for agriculture due to variability associated with non-point process  Would have to be defined in terms of probability of attainment – requires unrealistic amount of data collection and calculations

Design Based Economic – Taxes and subsidies on inputs and technology causing pollution  Based on expected runoff estimated on inputs and technology in use  Or directly on inputs and technology themselves  Estimates made using simulation model incorporating effects of all decisions Standards – restrictions placed on inputs/production specific to achieving certain environmental goals  Farmers actions observed by authorities basis for compliance not whether goal is achieved or not  Based on expected runoff’s or Directly on inputs/technology BUT: Administration and enforcement costs high  Direct may be better as penalising for something expected not proven can seem unfair

Market Based Emissions trading – hard to impose in agriculture How do we base distributing credits/licence to pollute? Requires activities that can be easily regulated, measured etc.

Liability Serves as an ex-ante incentive to penalise farmers from engaging in activity that may damage others Farmers more likely to act environmentally friendly if alternative is penalties that outweigh benefits of pollution producing activity. Again hard to measure with agriculture, how do we trace problems to source? Site specific info needed – as always with agric policy! Legal solutions very costly.

Ranking 1.Direct Methods – economic incentives or standards placed directly on inputs etc that cause problems 2. Market Based – (if possible) measure/distribute credits etc once a year 3. Liability – Strict legal penalties very effective if funding/authority available, spot checks etc