Science for Solutions 

NOAA COASTAL OCEAN PROGRAM 

Decision Analysis Series No. 20 

Evaluation of the Economic Costs and Benefits of 

Methods for Reducing Nutrient Loads to 

the Gulf of Mexico 

Topic 6 Report for the Integrated Assessment 

on Hypoxia in the Gulf of Mexico 

Otto C. Doering, Francisco Diaz-Hermelo, Crystal Howard, 

Ralph Heimlich, Fred Hitzhusen, Richard Kazmierczak, John Lee, 

Larry Libby, Walter Milon, Tony Prato, and Marc Ribaudo 

May 1999 

1950 1055 1W lW 1970 1075 1980 1985 1990 1995 2000 

YEAR 

U.S. DEPARTMENT OF COMMERCE 

National Oceanic and Atmospheric Administration 

National Ocean Service 

Coastal Ocean Program 
GULF OF MEXICO HYPOXIA ASSESSMENT 

This report is the sixth in a series of six reports developed as the scientific basis for an integrated assessment 

of the causes and consequences of hypoxia in the Gulf 

of Mexico, as requested by the White House Office of 

Science and Technology Policy and as required by Section 604a of P.L. 105-383. For more information on the 

assessment and the assessment process, please contact 

the National Centers for Coastal Ocean Science at 

(30 1) 71 3-3060. 

DECISION ANALYSIS SERIES 

The Decision Analysis Series has been established by 

NOAA's Coastal Ocean Program (COP) to present 

documents for coastal decision makers which contain 

analytical treatments of major issues or topics. The issues, topics, and principal investigators have been selected through an extensive peer review process. To 

learn more about the COP or the Decision Analysis 

Series, please write to: 

NOAA 

National Centers for Coastal Ocean Science 

Coastal Ocean Program 

13 15 East-West Highway, Room 9700 

Silver Spring, Maryland 209 10 

phone: 30 1-713-3338 

fax: 30 1 -7 1 3-4044 

web: http:llwww.cop.noaa.gov 

e-mail: coastalocean@cop.noaa.gov 

Cover image: Annual nitrogen inputs and outputs for the 

Mississippi-Atchafalaya River Basin from all major sources 

during 1951-96. 
Science for Solutions 

NOAA COASTAL OCEAN PROGRAM 

DecisionAnalysis Series No. 20 

Evaluation of the Economic Costs and Benefits of 

Methods for Reducing Nutrient Loads to 

the Gulf of Mexico 

Topic 6 Report for the Integrated Assessment 

on Hypoxia in the Gulf of Mexico 

Otto C. Doering, Purdue University 

Francisco Diaz-Hermelo, Purdue University 

Crystal Howard, Purdue University 

Ralph Heimlich, Economic Research Service, USDA 

Fred Hitzhusen, The Ohio State University 

Richard Kazmierczak, Louisiana State University 

John Lee, Purdue University 

Larry Libby, The Ohio State University 

Walter Milon, University of Florida 

Tony Prato, University of Missouri 

Marc Ribaudo, Economic Research Service, USDA 

May 1999 

U.S. DEPARTMENT OF COMMERCE 

William M. Daley, Secretary 

National Oceanic and Atmospheric Administration 

D. James Baker, Undersecretary for Oceans and Atmosphere 

National Ocean Service 

Nancy Foster, Assistant Administrator 

National Centers for Coastal Ocean Science 

Donald Scavia, Director 

Center for Sponsored Coastal Ocean Research-Coastal Ocean Program 

David Johnson, Director 
This publication should be cited as: 

Doering, Otto C., Francisco Diaz-Hermelo, Crystal Howard, Ralph! Heimlich, Fred Hitzhusen, 

Richard Kazmierczak, John Lee, Larry Libby, Walter Milon, Tony Prato, and Marc Ribaudo. 

1999. Evaluation of the Economic Costs and Benefits of Methods for Reducing Nutrient 

Loads to the Gulf of Mexico: Topic 6 Report for the Integrated Assessment on Hypoxia in the 

Gulf of Mexico. NOAA Coastal Ocean Program Decision Analysis Series No. 20. NOAA 

Coastal Ocean Program, Silver Spring, MD. 115 pp. 

Corresponding author information: 

Otto C. Doering Ill 

Department of Agricultural Economics 

Purdue University 

1 145 Krannert Building 

West Lafayette, IN 47907- 1 145 

This-publication does not constitute an endorsement of any commercial product 

or intend to be an opinion beyond scientific or other results obtained by the National Oceanic and Atmospheric Administration (NOAA). No reference shall be 

made to NOAA, or to this publication furnished by NOAA, in any advertising or 

sales promotion that would indicate or imply that NOAA recommends or endorses any proprietary product mentioned herein, or that has as its purpose an interest to cause directly or indirectly the advertised product to be used or purchased 

because of this publication. 
Contents 

LIST OF FIGURES AND TABLES .................................................................................................vi 

ACKNOWLEDGMENTS ...............................................................................................................IX 

FOREWORD................................................................................................................................... 

... EXECUTIVE SUMMARY ............................................................................................................XIII 

I.I Scope of This Report............................................................................................................. I 

1.2 Report Outline ................................................................................................................

2. PROBLEMSETTING AND METHODS ...............................................................................3 

2.1 Sources of Nitrogen............................................................................................................... 3 

2.1 .I Guidance from Topic 5 .............................................................................................. 3 

2.1.2 Geography of nitrogen sources ................................................................................. 4 

2.2 Policy Setting........................................................................................................................... 5 

2.2. \ Water quality laws...................................................................................................... 5 

2.2.1. I The Clean Water Act .................................................................................. 5 

2.2.2 Conservation policy setting ....................................................................... :.............6 

2.2.3 Agricultural policy setting .......................................................................................... 6 

2.2.3.1 Farm and food policy................................................................................... 6 

2.3 Reducing Nitrogen Loss from Fertilizer ............................................................................... 8 

2.3.1 Reducing nitrogen loss from agriculture................................................................... 9 

2.3.1. I Nitrogen crediting and testing.................................................................... 9 

2.3.1.2 Precision nitrogen application...................................................................I0 

2.3.2 Restoring wetlands to reduce nitrogen loss ...........................................................I I 

3 . ROLE OF ECONOMICS IN POLICY ANALYSIS ...............................................................1 2 

3.1 Goals of Environmental Policy ............................................................................................ 12 

3.1 . 1 Efficiencyand benefit-cost analysis ........................................................................... 13 

3.1.2 Cost-effectiveness analysis....................................................................................... I4 

3.1.3 Second-best policies ................................................................................................ I4 

3.2. Policy-Relevant Characteristics of Nonpoint-Source Pollution .........................................I5 

3.2.1 Observability of runoff and loadings ........................................................................ 15 

3.2.2 Natural variability and pollution flows ..................................................................... 16 

iii 
Economic Costs and Benefits of Reducing Nutrient Loads to the Gulf 

3.2.3 Heterogeneous geographic impacts ........................................................................ 16 

3.2.4 Transboundary effects.......................................................................................... 16 

3.2.5 Uncertain water quality damages ............................................................................. 16 

3.2.6 Time lags............................................................................................................... 17 

Economic Considerations in Selecting Policy Instruments ................................................17 

3.3.1 Economic performance ........................;...................................................................17 

3.3.2 Administration and enforcement costs ...................................................................17 

3.3.3 Flexibility................................................................................................................... 18 

3.3.4 Innovation................................................................................................................. 18 

3.3.5 Political and legal feasibility ...................................................................................... 18 

3.3.6 Implementation basis ............................................................................................... 19 

Policy Instruments for Achieving Goals ............................................................................... 19 

Scope and Outline of the Economic Analysis ..................................................................... 21 

3.5.1 A cost-effectiveness economic analysis.................................................................. 2 I 

3.5.2 Criteria for choice of reductions............................................................................. 22 

3.5.3 Background and general assumptions ..................................................................... 22 

COSTSOF ALTERNATIVECONTROLOPTIONS ..........................................................24 

USMP Model for Agriculture ............................................................................................... 25 

Cropland Nitrogen Control................................................................................................ 30 

4.2.1 Parametric reduction in nitrogen ............................................................................. I 

4.2.1.1 Achieving an environmental goal ............................................................... 37 

4.2.2. Restrictingfertilizer to achieve the nitrogen-loss goal ...........................................38 

4.2.3 Taxing fertilizer to achieve the nitrogen-loss goal .................................................. 40 

Wetland Restoration for Denitrification ............................................................................ 40 

4.3.1 Targeting wetland enrollment .................................................................................. 45 

Riparian Buffers for Nitrogen Filtering and Denitrification................................................48 

Mixed Policy.......................................................................................................................... I 

Summary............................................................................................................................... 52 

Point-Source Reduction Through Nonpoint Trading ......................................................... 52 

ENVIRONMENTAL BENEFITS ..........................................................................................59 

Summary of Gulf of Mexico Benefits...................................................................................59 

Intra-basin Benefits ............................................................................................................... I 

5.2.1 Sediment- and erosion-reduction benefits .............................................................. 63 

5.2.1. I On-farm benefits ....................................................................................... 63 

5.2.1.2 Off-farm benefits ....................................................................................... 64 

5.2.2 Wetland benefits ...................................................................................................... 65 

5.2.2.1 Wetland valuation studies......................................................................... 65 

RANKING THE STRATEGIES............................................................................................69 

Summarizing the Benefits and Costs Associated with Hypoxia Reduction.......................69 
. Contents v 

7.1 Transaction Costs................................................................................................................ 72 

7.1.1 Hydrologic versus political boundaries ...................................................................72 

7.1.2 Regulations and incentives ..............................................!.......................................73 

8. CONCLUDINGOBSERVAT~ONS...................................................................................... 75 

8.1 Benefits from Reducing Nitrogen Loss in the Gulf and Mississippi Basin .........................75 

8.2 Costs of Reducing Nitrogen Loss in the Gulf and Mississippi Basin ..................................75 

8.3 Cost-Effective Strategies ..................................................................................................... -77 

APPENDICES 

A. ANIMALWASTE..............................................................................................................79 

A.I Livestock Waste................................................................................................................... 79 

A.2 Manure.................................................................................................................................. I 

A.2. I Studies of nutrient overload .................................................................................... 82 

A.2.2 Water quality and manure........................................................................................ 83 

A.2.3 Manure management ................................................................................................ 84 

A.2.3. I Land application example.......................................................................... 86 

A.3 Economics and Policy Considerations ................................................................................. 89 

A.4 Manure Benefits.................................................................................................................... 90 

A.4. I Disposal cost ............................................................................................................ 90 

A.5 Nutrients .............................................................................................................................. I 

A.6 Conclusion............................................................................................................................ 92 

B . ATMOSPHERICDEPOSITIONOF NITROGEN ...............................................................94 

B.I Benefits and Costs of Reducing Different Sources of 

Atmospheric Deposition of Nitrogen ............................................ ;....................................94 

B.2 Recent Findings on Sources and Loadings........................................................................... 94 

B.2. I Characteristics of atmospheric nitrogen sources ...................................................94 

B.2.2 -Recent findings on loadings ...................................................................................... 95 

B.3 Cost of Reducing the Amount of Atmospheric Nitrogen Deposition ..............................96 

B.4 Trade-offs Between Point and Nonpoint Sources in 

Reducing Atmospheric Nitrogen Loadings......................................................................... 96 

C . OVERVIEW OF THE EPIC MODEL ...............................................................................100 

C . I The Erosion Productivity Impact Calculator (EPIC) Model ..............................................100 

C.2 Operational Overview ....................................................................................................... 100 

C.3 Model Applications............................................................................................................. 101 

C.4 Strengths of EPIC................................................................................................................ 102 

C.5 Limitations of EPIC............................................................................................................. 102 

C.6 Conclusion.......................................................................................................................... 103 

REFERENCES.............................................................................................................................I04 
List of Figures and Tables 

FIGURES 

FIGURE 4.1. U.S. mathematical programming (USMP) model regions...................................28 

FIGURE 4.2. 

FIGURE 4.3. 

FIGURE 4.4. 

FIGURE 4.5. 

FIGURE 4.6. 

FIGURE 4.7. 

FIGURE 4.8. 

FIGURE 4.9. 

FIGURE 6.1. 

FIGURE 8.1. 

FIGURE B.1. 

FIGURE B.2.. 

TABLES 

TABLE 2.1. 

TABLE 4.1. 

TABLE 4.2. 

TABLE 4.3. 

TABLE 4.4. 

TABLE 4.5. 

TABLE 4.6. 

Impacts of nitrogen-loss restrictions on producer net returns ..............................35 

Impacts of nitrogen-loss restrictions on nitrogen loss ..........................................36 

Impacts of nitrogen-loss restrictions on phosphorus loss......................................36 

Impacts of nitrogen-loss restrictions on soil erosion .............................................37 

Wetland restoration alternatives ............................................:..............................46 

Social cost per unit of N reduction. without intra-basin benefits. 

by control method .................................................................................................. 54 

Planning level biological nitrogen removal retrofit cost curves.............................55 

Demand for N reduction for point-source trading ...............................................57 

Agricultural sector adjustment costs per unit of N reduction. net of 

intra-basin benefits. by control method ................................................................ 71 

Illustrative costs and benefits of nonpoint nitrogen control in the U.S. ..............78 

Utility ......cost per ton of NOxemission reduction ..........................................98 

Motor vehicle source cost per ton of NOxemission reduction..............................98 

Annual nitrogen inputs ........................................................................................... 3 

Illustrative cropping systems in the USMP model. by USDA 

farm production region.......................................................................................... 26 

Cost per acre of land restored................................................................................. 29 

Baseline for the U.S. mathematical programming (USMP) model .....................30 

Percentage change in crop acreage as a result of reductions in N loss ..................32 

Percentage change in crop price as a result of reductions in N loss ......................32 

Percentage change in export volume as a result of reductions in N loss ...............33 
List of Figures and Tables vii' 

TABLE 4.7. 

TABLE 4.8. 

TABLE4.9. 

TABLE 4.10. 

TABLE 4.11. 

TABLE4.12. 

TABLE 4.13. 

TABLE4.14. 

TABLE 4.15. 

TABLE 4.16. 

TABLE 4.17. 

TABLE 4.18. 

TABLE 4.19. 

TABLE 4.20. 

TABLE 4.21. 

TABLE 4.22. 

TABLE 5.1. 

TABLE 5.2. 

TABLE 5.3. 

TABLE 5.4. 

TABLE 5.5. 

TABLE 6.1. 

TABLE A.1. 

TABLE A.2. 

Summary of economic costs of N loss-reduction strategies ..................................33 

Comparison of fertilizer-reduction strategies in the Mississippi Basin (MB).......38 

Comparison of economic impacts of fertilizer constraints and taxes ....................39 

Impacts of fertilizer reduction on environmentalindicators .................................39 

Direct costs of wetland restoration. enrollment at least cost.................................41 

Percentage change in crop acreage. enrollment at least cost .................................42 

Percentage change in crop prices. enrollment at least cost ...................................42 

Percentage change in crop exports. enrollment at least cost .................................43 

Percentage change in farm net cash returns and net social benefit. 

enrollment at least cost ..........................................................................................43 

Change in nutrient and sediment losses. enrollment at least cost ........................44 

Performance of a 20.234.km2 (5-million-acre) wetland restoration program .....47 

Direct costs of wetland restoration. enrollment at least cost .................................49 

Change in crop acreage. prices. returns. and nutrient losses for a 

109.266.km2 (27-million-acre) riparian buffer restoration program 

enrolled proportional to N yield.............................................................................50 

Performance of a 109.266.km2 (27-million-acre) riparian buffer 

restoration program................................................................................................51 

Summary of point-source control costs. total demand for credits. 

amounts purchased. and the cost of a marginal credit...........................................56 

Changes in crop prices and acreage planted in trading scenario. by 

Mississippi drainage and rest of U.S. .....................................................................56 

Changes in physical environmentalindicators for trading scenario. 

by Mississippi drainage and rest of U.S ..................................................................58 

Summary of estimated benefits associated with hypoxia reduction in 

the Gulf of Mexico. as presented in the Topic 2 report ........................................60 

Summary of productivity and water quality benefits from reduced soil erosion....63 

Off-site damages from soil erosion. by farm production region ............................64 

Economic values of wetland functions. Mississippi River drainage ......................66 

Estimated economicvalue of wetland restoration aside from 

hypoxia mitigation .................................................................................................67 

. . Summary of economc ~mpacts..............................................................................70 

Number of head farm: and 1992 ............................................................80 

Number of farms and animal units by sub-basin in the Mississippi watershed ....80 
viii Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf 

TABLE A.3. 

TABLE A.4. 

TABLE A.5. 

TABLE A.6. 

TABLE A.7. 

TABLE A.8. 

TABLE A.9. 

TABLE A.10. 

TABLE A.11. 

TABLE A.12. 

TABLE A.13. 

TABLEA.14. 

TABLE A.15. 

Estimated area of land for manure ........................................................................81 

Estimated manure nitrogen production ................................................................81 

Estimated manure phosphorus production ................I ..........................................81 

Nutrients applied per acre from manure ................................................................82 

Potential for nitrogen available from animal manure to meet or 

exceed plant uptake and removal ............................................................................83 

Annual pounds of nutrients in manure, as excreted per 1,000 

pounds liveweight ..................................................................................................84 

Nutrient losses from animal manure. as affected by method of handling 

and storage .............................................................................................................85 

Approximate nitrogen losses from manure to the air. as affected by 

application method ...............................................................................................85 

Acreage and application rate for manure per sow ..................................................86 

Total acres needed per year for land application of manure. 

based on method of storage and nutrient constraint .............................................87 

Annual operating and disposal costs of Missouri dairy lagoon system ..................88 

Annual operating costs of Missouri dairy liquid manure tank (pit) system..........89 

Market value of delivered nutrients........................................................................89 

TABLE A.16. Average custom costs of delivering nutrients in Iowa swine manure to 

corn and soybeans ..................................................................................................91 

TABLE A.17. Comparing the amount of nutrients supplied by manure and their 

value for each nutrient target 93 

TABLE B.I. Cost of reducing nitrogen load from nonatmospheric sources .............................96 

TABLEB.2. . Nitrogen load reduction from atmosphericsources and cost by source.................97 

TABLEB.3. Nitrogen load reduction and cost ..........................................................................99 
I 

Acknowledgments 

We would like to thank Pat Dudley at Purdue University for her patience in receiving electronic 

bits and pieces from around the country and assembling them into this manuscript and doing 

this at all hours if necessary. The leaders of the other teams deserve recognition for their cooperative spirit in this venture. This Topic 6 report is the caboose of this train, and the cheerful assistance from the team leaders like Don Goolsby, Bill Mitsch, Andy Solow, and the others was 

absolutely essential in our ability to understand the problem, the science, and the trade-offs to 

get our job done. Our team members and additional contributing authors also maintained a 

sense of humor throughout, which allowed us to get this report completed in the 30-day time 

frame after the last scientific report was completed. Special credit and thanks go to the back 

room group at the Economic Research Service, individuals like Mark Peters and Roger Claassen 

who were always willing to pitch in and run the analytical models "just one more time." They 

also made their models transparent and understandable to the rest of us, so we could judge how 

much confidence to place in the different results. We all borrowed heavily in terms of support 

from our home institutions as well, because we and they believed this was an effort to provide 

information for the public to make informed decisions and had to be done. Finally, the group at 

the National Oceanic and Atmospheric Administration, particularly Don Scavia and Mike 

Dowgiallo, created and defended our environment to do the highest-quality independent work 

possible. For this all the teams are grateful. 

Otto Doering, for the Topic 6 Team 

Purdue University 
Foreword 

Nutrient overenrichment from anthropogenic sources is one of the major stresses on coastal 

ecosystems. Generally, excess nutrients increase algal production and the availability of organic 

carbon within an ecosystem-a process known as eutrophication. Scientific investigations in the 

northern Gulf of Mexico have documented a large area of the Louisiana continental shelf with 

seasonally depleted oxygen levels (< 2 mg/l). Most aquatic species cannot survive at such low oxygen levels. The oxygen depletion, referred to as hypoxia, forms in the middle of the most important commercial and recreational fisheries in the conterminous United States and could threaten 

the economy of this region of the Gulf. 

As part of a process of considering options for responding to hypoxia, the U.S. Environmental 

Protection Agency (EPA) formed the Mississippi RiverlGulf of Mexico Watershed Nutrient 

Task Force during the fall of 1997, and asked the White House Office of Science and Technology Policy to conduct a scientific assessment of the causes and consequences of Gulf hypoxia 

through its Committee on Environment and Natural Resources (CENR). A Hypoxia Working 

Group was assembled from federal agency representatives, and the group developed a plan to 

conduct the scientific assessment. 

The National Oceanic and Atmospheric Administration (NOAA) has led the CENR assessment, although oversight is spread among several federal agencies. The objectives are to provide 

scientific information that can be used to evaluate management strategies, and to identify gaps in 

our understanding of this complex problem. While the assessment focuses on hypoxia in the 

Gulf of Mexico, it also addresses the effects of changes in nutrient concentrations and loads and 

nutrient ratios on water quality conditions within the Mississippi-Atchafalaya River system. 

As a foundation for the assessment, six interrelated reports were developed by six teams with experts from iiithin and outside of government. Each of the reports underwent extensive peer review by independent experts. To facilitate this comprehensive review, an editorial board was 

selected based on nominations from the task force and other organizations. Board members were 

Dr. Donald Boesch, University of Maryland; Dr. Jerry Hatfield, U.S. Department of Agriculture; Dr. George Hallberg, Cadmus Group; Dr. Fred Bryan, Louisiana State University; Dr. 

Sandra Batie, Michigan State University; and Dr. Rodney Foil, Mississippi State University. The 

six reports are entitled: 

Topic I: Characterization of Hypoxia. Describes the seasonal, interannual, and long-term 

variations of hypoxia in the northern Gulf of Mexico and its relationship to nutrient loadings. Lead: Nancy N. Rabalais, Louisiana Universities Marine Consortium. 
xii Economic Costs and Benefits of ReducingNutrient Loadsto the Gulf 

Topic 2: Ecological and Economic Consequences of Hypoxia. Evaluates the ecological and 

economic consequences of nutrient loading, including impacts on the regional economy. Coleads: Robert J. Diaz, Virginia Institute of Marine Science, and Andrew Solow, Woods Hole 

OceanographicInstitution, Centerfor Marine Policy. I 

Topic3: Fluxand Sources of Nutrients in the Mississippi-Atchafalaya River Basin. Identifies the sources of nutrients within the Mississippi-Atchafalaya system and Gulf of Mexico. 

Lead Donald A. Goolsby, US. Geological Survey. 

Topic 4: Eficts of Reducing Nutrient Loads to Suface Waters Within the Mississippi River 

Basin and Gulfof Mexico. Estimates the effects of nutrient-source reductions on water quality. Co-leads: Patrick L. Brezonik, Universityof Minnesota, and VictorJ. Bierman, Jr., LimnoTech, Inc. 

Topic5: Reducing Nufrient Loads, Especial4 Nitrate-Nitrogen, to Suface Water, Ground 

Water,and the GulfofMexico. Identifies and evaluates methods for reducing nutrient loads. 

Lead: WilliamJ. Mitsch, Ohio State University. -

Topic 6: Evaluation of the Economic Costs and Benefits of Methods for Reducing Nutrient 

Loads to the Gulfof Mexico. Evaluates the social and economic costs and benefits of the 

methods identified in Topic 5 for reducing nutrient loads. Lead Otto C. Doering, Purdue 

University. 

These six individual reports provide a foundation for the final integrated assessment, which the 

task force will use to evaluate alternative solutions and management strategies called for in Public 

Law 105-383. 

As a contribution to the Decision Analysis Series, this report provides a critical synthesis of the 

best available scientific information regarding the ecological and economic consequences of hypoxia in the Gulf of Mexico. As with all of its products, the Coastal Ocean Program is very interested in ascertaining the utility of the Decision Analysis Series, particularly with regard to its 

application to the management decision process. Therefore, we encourage you to write, fax, call, 

or e-mail us with your comments. Our address and telephone and fax numbers are on the inside 

front cover of this report. 

David Johnson, Director 

Coastal Ocean Program 

Donald Scavia, Chief Scientist 

National Ocean Service 
I 

~xecutiveSummary 

In this report we analyze the Topic 5 report's recommendations for reducing nitrogen losses to 

the Gulf of Mexico (Mitsch et al. 1999).We indicate the relative costs and cost-effectiveness of 

different control measures, and potential benefits within the Mississippi River Basin. For major 

nonpoint sources, such as agriculture, we examine both national and basin costs and benefits. 

Based on the Topic 2 economic analysis (Diaz and Solow 1999), the direct measurable dollar 

benefits to Gulf fisheries of reducing nitrogen loads from the Mississippi River Basin are very 

limited at best. Although restoring the ecological communities in the Gulf may be significant 

over the long term, we do not currently have information available to estimate the benefits of 

such measures to restore the Gulf's long-term health. For these reasons, we assume that measures to reduce nitrogen losses to the Gulf will ultimately prove beneficial, and we concentrate on 

analyzing the cost-effectiveness of alternative reduction strategies. We recognize that important 

public decisions are seldom made on the basis of strict benefit-cost analysis, especially when 

complete benefits cannot be estimated. We look at different approaches and different levels of 

these approaches to identify those that are cost-effective and those that have limited undesirable 

secondary effects, such as reduced exports, which may result in lost market share. 

We concentrate on the measures highlighted in the Topic 5 report, and also are guided by the 

source identification information in the Topic 3 report (Goolsby et al. 1999). Nonpoint sources 

that are responsible for the bulk of the nitrogen receive most of our attention. We consider restrictions on nitrogen fertilizer levels, and restoration of wetlands and riparian buffers for denitrification. We also examine giving more emphasis to nitrogen control -in regions contributing a 

greater share of the nitrogen load. 

Although we are limited by existing data and existing analytical capacity, within these constraints we provide information for making policy judgments by setting bounds and parameters 

for different approaches to nitrogen reduction. Topic 5 was primarily concerned about producers' 

ability to achieve nitrogen reductions using feasible production practices. Our analysis accounts 

for economic impacts on the producers and keeps changes in acreage and exports within historic 

bounds of recent past adjustments-something of concern to many in the agricultural sector. 

Fertilizer restrictions are a more cost-effective means of reducing nitrogen losses than strategies 

based only on wetland restoration or buffers. They are more cost-effective than a fertilizer tax, 

because of the tax's impacts on producer net returns. Wetland-based strategies are more expensive 

than fertilizer-reduction strategies to achieve the same goal of reducing nitrogen loss. Landretirement costs and wetland-restoration costs outweigh the higher environmental benefits generated by wetlands. Based on uniform assumptions about denitrification efficiency, focusing on 

restoring wetlands proportional to nitrogen losses is less cost-effective than enrolling wetlands at 

lowest cost. Vegetative buffers are least cost-effective, due to low nitrogen filtering relative to 

wetlands, lower wildlife-associated benefits, and high land-retirement costs. 
xiv Economic Costs and Benefits of ReducingNutrient Loadsto the Gulf 

A 5-million-acre wetland restoration combined with a 20% reduction in fertilizer is the most 

cost-effective, practicable strategywe examined for meeting a 20% nitrogen loss-reduction goal. 

This strategy reduces nitrogen loss by about 20% with few, if any, secondary effects that are beyond our historical experience of sectoral adjustment in agriculture! Reducing fertilizer by 45% 

meets the goal for a slightly higher cost. A policy that includes wetlands has additional advantages because it meets other policy objectives and generates wildlife and recreation benefits. 

For the agricultural sector, cost savings from reduced fertilizer nutrient inputs are modest in most 

cases. However, commodity prices and aggregate producer net returns rise at increasing levels of 

nitrogen-loss reductions. This is not a result of lower nitrogen fertilizer costs; instead, it derives 

from reduced production resulting from reduced fertilizer inputs. These begin to be significant 

when nitrogen-loss restrictions reach 30% and higher. Aggregate returns to U.S. agriculture increase, but costs are imposed on some who are constrained to abandon profitable production in 

order to meet nitrogen-loss goals. Severe restrictions on nitrogen loss from agriculture mean that 

production ceases on acres in the Mississippi River Basin that are especially vulnerable to nitrogen loss. The restrictions also cause shifts to cropping systems that lose less nitrogen. Production 

of crops with high nitrogen losses is also increasingly shifted out of the basin. Some producers 

suffer these losses, while those remaining in production with cropping systems that provide relatively high value reap benefits from increased commodity prices as the supply is reduced due to 

nitrogen restrictions. 

We find only modest aggregate impacts on the sector for up to a 20% nitrogen-loss reduction 

(comparable to the 15-20% reduction in nitrogen losses from 'agriculture deemed feasible and 

recommended by the Topic 5 team). We find that restoring 5 million acres of former wetlands 

also has minimal impact on agricultural production and related factors. At the 10-million-acre 

level, noticeable price, land-use, and other impacts occur. 

Livestock producers bear more costly feed grain input costs as prices increase under nitrogen-loss 

restrictions. Consumers of basic commodities, and the finished food and fiber products derived 

from them, suffer some loss from price increases caused by production changes and acreage restored to wetlands. There is also a potential cost from decreased agricultural export volumes that 

depends upon the level of nitrogen restriction (although the value of exports increases because of 

price increases). Export reductions become more important and begin to break out of historical 

bounds when nitrogen loss is restricted to 30% or more. The primary concern of the agribusiness industry is loss of sales in an expanding free-market environment where market share is 

voluntarily constrained to meet environmental objectives. Also, reduced acreage in production 

and reduced output can have negative impacts on input and shipping sectors. 

As nitrogen use is restricted inside the basin, increased nitrogen, phosphorus, and sediment loss 

in agricultural production occurs outside. Reducing nitrogen losses to the Gulfis likely to impose 

additional pollution costs on the rest of the nation as an indirect impact. Price increases due to 

reduced production within the basin will intensifjr crop production elsewhere. The extent of derived environmental impacts is estimated to be up to the 20% nitrogen loss-reduction level. 

Finally, institutional factors are important in any broad-based effort to reduce nitrogen loss in 

the Mississippi River Basin. For any program, administration, monitoring, verification, and enforcement costs and capabilities must play an important part in the final choice of strategy or action. These costs become even more critical in a region such as the Mississippi River Basin, 

which includes many independent political jurisdictions. Policies need to be coordinated across 

political boundaries, and the costs of coordination increase if multiple strategies are employed. 
CHAPTER I 

Introduction 

I.I SCOPE OF THIS REPORT 

The objectives assigned to the Topic 6 team were to: 

"Evaluate the social and economic costs and benefits of the methods identified in Topic 5 

for reducing nutrient loads. This analysis will include an assessment of various incentive programs and will include any anticipated fiscal benefits generated for those attempting to reduce [nitrogen] sources." 

We compiled the information available in the literature and analyzed it where analytical tools 

and data already existed. In carrying out our task, we have: 

Analyzed the Team 5 recommendations as far as possible. 

Used the Topic 2 analysis of the costs of hypoxia to the Gulf to represent the value of 

benefits that may be ascribed to the Gulf from reducing nitrogen flows'from the Mississippi Basin to the Gulf. 

Identified the relative costs of reducing nitrogen flows, to indicate the cost-effectiveness 

of various measures. 

Indicated, to the best of our ability, estimates of consumer and producer surplus, tax burdens, and incidence of costs to various groups. 

Although we lacked an adequate foundation of existing work to estimate social costs, we have 

kept such iosts in mind and have sometimes flagged them in analyzing alternative ways of reducing nutrients that would create relatively greater or lesser social costs. 

For this report we have not recommended or analyzed specific policies or policy alternatives. 

These will be considered in the Integrated Assessment that will draw together the work of all of 

the six reports. Whenever possible, we have analyzed different actions that may be taken to reduce nitrogen flows and have presented ranges of possible actions to allow the Integrated Assessment team to judge the efficacy, secondary impacts, and cost-effectiveness of a particular 

action applied at different levels. 

Chapter 2 refers to the work of the Topic 3 team on the sources of nitrogen and their magnitudes, proportional contributions, and characteristics.It reviews some of the important guidance 
2 Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf 

developed by the Topic 5 team on setting priorities and concentrating on specific sectors and approaches. It also presents some important aspects of existing policy-setting strategies, along with 

background information on existing work presented for important focus points in the Topic 3 

and Topic 5 reports, including nitrogen loss from agriculture and economic studies on wetland 

use in nitrogen control. 

Chapter 3 provides a background for the assumptions and criteria that are common to economic 

analysis. It explains how the characteristics of nonpoint-source pollution are particularly important to analyzing potential mitigation policies because most of the nitrogen reaching the Gulf 

comes from nonpoint sources. This chapter also discusses the economic considerations important in selecting policy instruments, examines some of our criteria and assumptions, and briefly 

looks at benefit-cost analysis and an explanation of our criteria and assumptions. 

Chapter 4 analyzes the costs to the agricultural sector and the rest of society of both using alternative strategies in the Mississippi Basin to reduce nitrogen loss from agriculture and using different amounts of wetlands to control nitrogen loss. Different ranges of control are simulated 

for the two aggregative analyses to assess indirect and well as direct costs and impacts. The 

chapter also includes a discussion of point-source reductions. 

Chapter 5 looks at the environmental benefits within the basin resulting from different actions 

taken to reduce nitrogen loss to the Gulf of Mexico. Chapter 6 assesses the results and identifies 

the strategies that achieve established program goals at least cost. Chapter 7 discusses institutional considerations relevant to a range of different policy options, and Chapter 8 summarizes . this report's important findings. 

Appendices A and B provide information on and the results of an analysis of animal waste and 

atmospheric deposition. Appendix C describes the ,EPIC (Erosion Productivity Impact Calculator) model used within the U.S. Mathematical Programming system. 
Problem Setting and Methods 

2.1 SOURCES OF NITROGEN 

The nitrogen balance table developed in the Topic 3 report provided a critical input for the 

Topic 5 and Topic 6 analyses. The relative contributions of direct nitrogen inputs and recycled 

nitrogen inputs are presented in Table 2.1. To the extent possible we have been guided by the 

balance sheet for our emphasis on various sources. -

TABLE 2.1. Annual nitrogen inputs. 

Legumes and pasturelhay 

Atmospheric deposition 

Potentially mineralizable soil nitrogen 29.5 

Wet ammonia deposition 

Point Sources 

2.1.1 Guidance from Topic 5 

Most of our effort has been on nonpoint sources, reflecting the recommendations from the 

Topic 5 report on methods and impacts of reducing nonpoint sources. This includes nitrogen 

losses from agricultural fertilizer, legumes and pasture, manure, and potential mineralization of 

soil nitrogen. Together these account for 90.5% of the total. 

We have not been able to account for manure,as being explicitly separated out from other nonpoint nitrogen sources. Manure is also a difficult balance sheet variable because corn produced in 

one place with fertilizer inputs may be fed through an animal in the same place, and the manure 
4 Economic Costs and Benefitsof ReducingNutrient Loads to the Gulf . 

nitrogen thus may be subject to double counting. However, we have added a more extensive discussion of manure as a source because of the current concerns about manure as a pollutant and 

because we believe that changes in the structure of the animal industry can lead to a greater proportion of the manure in the basin ending up in the Gulf (see Appendix A). 

We have presented some of the information available on atmospheric deposition of nitrogen. 

This comes primarily from Chesapeake Bay, but provides some estimates of costs of reducing atmospheric nitrogen. We have also provided some analysis on municipal point-source nitrogen 

through an example of using tradable permits to reduce the cost of more stringent point-source 

requirements (see Appendix B). 

The Topic 5 report highlighted four approaches to reducing nitrogen loadings: 

Reducing nitrogen use by and nitrogen loss from agriculture. 

Intercepting laterally moving water through riparian buffers, controlled drainage, and 

wetlands, particularly targeting areas with high concentrations of nitrates. 

Installing tertiary treatment systems for point sources. 

Providing a system of river-diversion backwaters in the Mississippi Delta and Upper Mississippi. 

To a great extent our analysis of reducing agricultural nitrogen losses parallels the Topic 5 recommendations in adjusting fertilizer levels, changing practices and cropping systems. We did not 

analyze expanding the distance between tile lines. We also approached the animal manure source 

differently, looking at the major component that is spread on the land. 

We have analyzed the restoration of wetlands and riparian buffers in the amounts discussed in 

the Topic 5 report. We have not analyzed controlled drainage, which is much more limited in 

application. We also did an analysis of concentrating the wetlands and buffers in regions of high 

nitrogen concentrations. 

Our approach to tertiary treatment ofpoint sources has been to look at the extent to which direct treatment costs could be mitigated by trading with less costly nonpoint-source control-in 

this case agriculture. The suggestion to use wetlands for treatment can be considered on the basis 

of the acres required and the costs and benefits of wetlands from our specific wetlands analysis. 

Both the river diversion at the Delta and flood diversion in the Upper Mississippi relate again to 

the creation of additional areas of wetlands plus additional engineering works. These were not 

analyzed as a specific case, but would be based on the analysis of the benefits and costs of wetland 

restoration. 

2.1.2 Geography of Nitrogen Sources 

The Topic 3 report maps those watersheds contributing the highest concentrations of nitrogen. 

On an engineering basis and on the basis of cost per unit of nitrogen reduced, one normally 

thinks in terms of first reducing the pollutant from the most concentrated sources. However, we 

found this approach was not as clear-cut for nonpoint sources, given the limited information we 

had. From the Topic 3 maps, the upper Corn Belt is an area of high concentration. From our 

analysis of reducing the net loss of nitrogen from agriculture across the basin, one can see the 

extent to which this area makes more adjustments-for example, in fertilizer use and cropping 

shifts-to achieve a given reduction in nitrogen loss with the least financial loss to farmers. In 
Chapter 2: Problem Setting and Methods 5 

creating wetlands to reduce nitrogen loss, we did examine concentrating new wetlands geographically on the "hot spots" of nitrogen loss; however, we found no clear advantage in doing 

so. The geographical limitation to a hot-spot watershed or region tended to greatly increase land 

acquisition cost, given the limited supply of wetland sites. I 

2.2. I Water Quality Laws 

2.2. I.l THE CLEANWATER ACT 

In fdl of 1997, Vice President Gore kted tfie U.S. En-ental Protection Agency 

(EPA) and the U.S. Department of Agriculture (USDA) to collaborate in preparing a 

Clean Water Action Plan to implement the Clean Water Act of 1972, as amended. The 

general goal of that parent leg&hon is to achieve 'Yisbable and wimfmble wakxs" for 

all Americans. Twentysix years later, much remains to be done. Approximately Wh,or 

18,000, of those water bodies tested are still out of compliance with tflat goal. A 1994 

report to Congress (USEPA, 1994a) indicated that 23% of river mpamlents, 43% of lake 

impairments, and 47% of estuarine impiments were caused by went enrichment 

Two years later, the 1996 National Water Quality Inventory (USEPA 1998a) reported 

even higher levels of rnmient impairment: 40% of impaued rivers, 51% bf impaued lakes, 

and 57% of Impaired estuaries. Agnculture was identified as the most wimsource 

of pollutants, followed by municipal sewer systems and llrban stomwak runoff. While 

point somm have been largely controlled, nonpoint pollution bm agriculsuburban,and urban sources remainsthe most challengingnational water @ty problem 
. . 

6 Economic Costs and Benefitsof Reducing Nutrient Loadsto the ~;lf 

Another important part of the Clean Water Action Plan establishes goals for reducing pollution 

from animal feeding operations. A draft "Unified National Strategy for Animal Feeding Operations" was released by EPA Administrator Browner and USDA Secretary Glickrnan on September 16, 1998. These animal operations create nutrient problems for 35,000 miles of nearly 

700,000 miles of river surveyed, including segments that feed the Mississippi and eventually the 

Gulf of Mexico. The strategy emphasizes voluntary action by livestock producers to develop 

comprehensive nutrient management plans by 2008. Units larger than 1,000 animals and those 

discharging directly into water bodies will be required to develop such plans as part of EPA's 

current permitting process. EPA will also be reviewing national environmental guidelines for all 

animal operations. (See Appendix A for a further discussion of the animal waste issue.) 

2.2.2 Conservation Policy Setting 

Several important federal laws establish the context for further actions to reduce nutrient pollution of the Gulf of Mexico. Farmers make production and marketing decisions in response to 

incentives established in markets that are defined by various rules for participation, including 

those contained in federal law. Changes in farmer behavior in the interest of further improving 

downstream water quality may require adjustments in those market rules. Policies and programs 

affecting water quality have emerged at all levels of government, but of most importance here are 

federal laws that transcend local and state boundaries. Particularly important are the federal 

conservation programs that are usually included in the various farms bills. The Conservation 

Reserve Program and the Environmental Quality Incentive Program, described below, are the 

largest of these. 

In the future, states are likely to take on an increasingly important role in protecting water quality. Initially, this will be in the form of regulation and special restrictions, like Iowa's and North 

Carolina's regulations relating to livestock operations animal waste. Many states are unlikely to 

be willing to spend the dollars targeted toward conservation and water quality that the federal 

government does. However, it appears likely that states will adopt a regulatory approach toward 

specific statewide or regional problems that will be more constraining than the blanket federal 

regulation. 

2.2.3 Agricultural Policy Setting 

2.2.3.1 FARM AND FOOD POLICY 

The "greening" of U.S. food policy really began with the Food Security Act of 1985 and has 

continued through the current Federal Agricultural Improvement and Reform Act of 1996 

(FAIR). Most likely, any future farm and food legislation will also acknowledge the relationships 

between food production and natural resource quality. 

Title XI1 of the 1985 Farm Law (P.L. 99-198) introduced Sodbuster, Swampbuster, and conservation compliance provisions to establish a firm policy link between the price- and incomesupport aspects of food policy and protecting the quantity and quality of natural resources. Farmers could retain eligibility for income supports only by protecting natural resources. The success 

of the environmental incentives depended very much on the availability and attractiveness of the 

income supports to eligible farmers (Reichelderfer 1990b). The Conservation Reserve Program 

(CRP)was introduced to permit government to lease the most erosive lands for 10 years to protect them against further damage or to prevent them from contributing to water quality prob-
Chapter 2: Problem Setting and Plethods 7" 

lems downstream. Primary emphasis in 1985was on-farm soil productivity, rather than off-farm 

damages. 

The Food, Agriculture, Conservation and Trade Act of 1990 (P.L. 101-624) continued the 

green initiatives of the 1985 law, by adding the watershed-based water Quality Incentive Program and expanding the CRP to focus more on off-farm water quality than on soil erosion. 

There has been much concern about the expiration of the temporary CRP contracts and the 

potential consequences (Ervin et al. 1991). Allof these programs rely on market incentives to 

encourage a pattern of farmer decisions that will have attractive social consequences. The crosscompliance provisions, however, added a mandatory aspect by requiring farmers to recognize that 

if they are to enjoy the benefits of income protection or risk reduction by government programs, 

they must consider the impacts of their production decisions on other natural resource users. 

The 1996 Farm Law (P.L. 104-127) further strengthened the environmental thrust of the 

conservation reserve with the Environmental Conservation Acreage Reserve Program 

(ECARP), and added an important incentive program to encourage farmers to reduce runoff 

that causes water quality problems (Ogg and Kuch 1997). Deliberate language to "reconcile productivity and profitability with protection and enhancement of the environment" clearly establishes the intent of this new era in farm and food policy. The law continues conservation 

compliance but grants farmers additional flexibility in establishing compliance. 

While ECARP enables some farmers to terminate CRP contracts early, those provisions do not 

apply to lands that have an erodibility index greater than 15 and that include filter strips, grass 

waterways, or riparian areas. Farmers may also sell long-term or permanent easements on wetlands and undertake wetland restoration with cost-share assistance through USDA (Osborn 

1996). While the link between wetland easements and eutrophication problems in the Gulf of 

Mexico may be indirect, wetlands perform critical environmental services in conjunction with 

farm operations that have long-term significance. 

Two programs that provide incentives for restoring wetlands and riparian buffers to intercept 

nutrients before they reach streams are the Wetland Reserve Program (WRP) and USDA's 

Conservation Buffer Initiative. WRP, first authorized in the 1990 farm bill and continued in 

the 1996 FAIR Act, has authority to enroll 975,000 acres of cropland that was formerly wetland 

in long-term or permanent easements and to share the cost of restoring wetlands (USDA 1997). 

Along with the Emergency Wetlands Reserve Program (EWRP), more than 700,000 acres of 

restored wethnds have been enrolled to date, with a large proportion in the Mississippi Delta 

and Corn Belt regions. The Conservation Buffer Initiative builds on efforts in several programs, 

primarily the continuous sign-up provisions of the Conservation Reserve Program and the 

Conservation Reserve Enhancement Program (CREP) (USDA/NRCS 1997). Producers willing to restore riparian buffers to permanent grass or trees can bypass competitive bidding in 

regular sign-up periods. Annual rental costs and a share of the restoration costs are paid. The 

CREP uses the continuous sign-up in conjunction with additional state program incentives to 

encourage buffer restoration. More than 700,000 acres of continuous sign-up practices have been 

enrolled to date, and USDA has approved CREPs in seven states, with nearly a dozen more in 

the application process. 

The Environmental Quality Incentive Program (EQIP) of the 1996 Act is directly aimed at 

inducing farmers to do a better job of reducing nutrient runoff than they would otherwise. It is 

meant to push them beyond what may be rational for their business and not simply pay for what 
8 Economic Costs and Benefits of ReducingNutrient Loads to the dulf 

they are inclined to do anyway (Libby 1998). For reasons more political than scientific, half of 

the EQIP dollars are to be targeted on livestock operations smaller than 1,000 animal units. 

While the program language speaks of "maximizing environmental benefits per dollar spent" at 

the national level, allocation priorities are set by states, with national efficiency defined as the 

sum of state priorities as further influenced by the 50% mandate for livestock. Farmers bid for 

EQIP dollars by indicating their 5- to 10-year conservation plans, which include changes to 

cropping systems, manure, and nutrient management. Conservation tillage options are seen as 

particularly effective in reducing nitrate and phosphate runoff (Fawcett 1995). Total incentive 

and cost-share payments for conservation and resource protection may not exceed $10,000 per 

farm per year, or $50,000 for the full contract. Total authorization is $200 million per year, most 

of which is redirected from the Commodity Credit Corporation (Osborn 1996). EQJP payments are included with other positive programs in the farm legislation as incentives for the 

farmer under the Conservation Compliance Program noted above. 

Other provisions of the FAIR Act relevant to Gulf of Mexico water quality implications of agriculture include the Forestry Incentives Program, authority for flood plain easement purchase, the 

Wildlife Habitat Incentive Program, and the Farmland Protection Program, which helps state 

and local governments buy conservation easements on farmland. 

2.3 REDUCING NITROGEN LOSS FROM FERTILIZER 

Fertilizer is a major factor in the nonpoint nitrogen loss from agriculture. One reason for this is 

the extremely high value resulting from the use of nitrogen. For example, at county average levels 

of corn production, an extra pound or pound and a half of nitrogen will yield an extra bushel of 

corn if other nutrients and moisture are adequate. At $0.18 a pound, nitrogen can yield an extra 

bushel worth $2 or more. 

There are two ways farmers react to this point strategically: 

First, extra nitrogen may be supplied as insurance against nitrogen loss that would cut 

production. Such loss could occur with heavy rainfall, saturated soil, and resulting denitrification. An extra 10-20 pounds of nitrogen costing a few dollars can result in an extra 

10-15 bushels worth at least $20-$30. This is a very rational insurance approach to adding what may otherwise be excess nitrogen. 

Second, farmers may add extra nitrogen to take advantage of an especially good year 

when moisture and other nutrients are not limiting, temperature is just right, and extra 

nitrogen will give a boost to production. Again, an extra couple of dollars have the capacity to increase returns tenfold in an especiallygood year as well as in a bad year when nitrogen may be lost. 

These trade-offs are illustrated by the case studies in section 2.3.1, which ixplore the economics 

of reducing nitrogen loss. Unfortunately, there are few case studies that examine these issues in a 

thorough, consistent way that can provide guidance across the entire Mississippi Basin. While 

these case studies provide some insight, a consistent modeling approach, such as that provided by 

the U.S. Mathematical Programming (USMP) modeling framework (which is supported by 

biophysical process modeling of nitrogen losses) is required to make credible estimates of both 

the economic and the physical impacts of alternative approaches to reducing nitrogen from agricultural production. 
Chapter 2: Problem Setting and Methods 9--

2.3.1 Reducing Nitrogen Loss from Agriculture 

Qu (1996) evaluated the economic and environmental impacts of alternative farming systems 

and trade-offs between watershed net returns and nonpoint-source pollutants in Missouri's 

Goodwater Creek watershed. Because any case study reflects the soil, 'climate, and physiographic 

characteristics of its location, it cannot be widely extrapolated to an area as diverse as the entire 

Mississippi hver Basin. Goodwater Creek watershed is located in a claypan soil region that covers a swath from northeastern Oklahoma to southwestern Illinois, including portions of Missouri; therefore, the results for Goodwater Creek watershed cannot be generalized widely. 

In Goodwater Creek, annual net return per hectare was directly related to fertilizer application 

rate when other factors were held constant. High fertilizer and pesticide applications distinguished the farming system with the highest returns over all sub-watersheds ($237.65/ha, or 

$96.17/ac) from the least profitable farming system ($49.13/ha or $19.88/ac) with the same tillage and rotations. 

Concentration of nitrate-nitrogen in surface runoff was significantly affected by fertilizer application rate and crop rotation, and varied spatially in the watershed. Farming systems with higher 

nitrogen application rates generated higher losses, other factors held constant. Within the same 

fertilizer application category (high, medium, or low), losses were highest for farming systems 

with more row crops (corn and soybeans) in the rotation and lowest for rotations with more 

close-grown crops, such as wheat. Farming systems with high fertilizer application rates that had 

more row crops in the rotation generated the highest nitrogen losses. Average concentrations in 

runoff for these farming systems were 13.45 ppm without riparian buffers, and 3.82 ppm with 

riparian buffers, reducing surface losses by about 70%. 

Qu found significant trade-offs between profitability and water quality. Total watershed net 

return decreased as nitrogen losses were decreased. Without riparian buffers, total watershed net 

return decreased $26,483 per ppm for a 5% reduction in losses and $37,298 per ppm for a 50% 

reduction. Total net return decreased more in some sub-watersheds than in others as water 

quality improved. For certain sub-watersheds, there was no trade-off between total net return 

and water quality. 

2.3. I.I NITROGEN CREDITING AND TESTING 

Economic theory tells us that in dealing with the problem of nonpoint-source pollutionparticularly htrogen (N) contamination of surface water-the most efficient strategy is to reduce 

N application rates in areas where they are excessive for crop needs. This is essentially a win-win 

situation because reducing N application rates both reduces fertilizer costs and increases profit 

margins, as well as decreases N contamination of surface water. This win-win situation can only 

occur if producers are operating on the flattened portion of the fertilizer response function. 

While farmers may be optimizing physical production rather than economic return, experience 

and good agronomic extension knowledge will have moved them to the left, back toward the 

portion of the yield-response function in which reducing N application rates implies a reduction 

in crop yields. Except within a relatively narrow range of reductions, decreased N application will 

reduce crop yields in this range and reduce incomes. 

Most crop production today is based on general, soil- or region-based fertilizer recommendations 

developed by university agricultural extension personnel. Nutrient planning based on crediting all 

potential sources of nitrogen and testing soils, plants, and manures for nitrogen content can reduce nitrogen applications over typical practice. Nitrogen management can be improved by in-
1 0 Economic Costs and Benefitsof ReducingNutrient Loads to the G-ulf ' 

creasing the efficiency of nitrogen use, defined as the percent of N applied to the land that is 

used by plants (Mabler and Bailey 1994). Proper crop and N fertilization management can reduce nitrate loss to the environment and achieve optimum crop production (Keeney and Follett 

1991). Recent evaluations of long-term corn experiments show that fertilizer N removal by corn 

grain rarely exceeds 40% of total available N, and is often much less at economically optimum 

corn yields (Blackmer 1986; Oberle and Keeney 1990). Depending on the initial level of fertilization, efficiency can be improved by increasing crop uptake of applied N, achieving the same or 

higher yield with reduced application of N, and reducing N losses by changing the timing 

and/or method of application (Bock and Hergert 1991). 

The extent to which producers across the Mississippi River Basin are currently overfertilizing is 

unknown, but some case studies indicate that significant reductions can occur without reducing 

yields. Based on USDA Economic Research Service surveys of Nebraska farmers, Fuglie and 

Bosch found that nearly half of the surveyed farmers have used N fertilizer recommendations 

from a preplant N testand were achieving N fertilizer reductions of 18-33% with no loss in 

yield. Shortle et al. (1994) found that 36% of farmers used late spring soil tests and were able to 

reduce N fertilizer use by 40%. A study of USDA cost and returns data by Trachtenberg and 

Ogg found that N fertilizer savings of 24-32% could be obtained by crediting all sources of N 

available on the farm. 

While some reduction in N fertilizer -overtypical application rates could be obtained using crediting and preplant soil testing, the costs of providing this information to producers and providing 

sufficient incentive to ensure adoption of these methods are not well known. 

2.3.1.2 PRECISION NITROGEN APPLICATION 

Applying nitrogen at rates that exceed crop uptake can increase nitrate-N concentrations in 

surface and ground water, contaminate drinking-water supplies, and degrade aquatic ecosystems. 

Nitrogen fertilizer is typically applied to a field at a uniform rate. Application rates needed to 

achieve economically optimum crop yields, however, can vary within fields due to spatial variability in soil moisture, soil N mineralization rates, and the efficiency with which crops use N. Uniform application of N may not achieve maximum net return when N is overapplied in some 

areas and underapplied in other areas of a field. Overapplication of N could degrade water quality, 

and underapplication could reduce crop yield and net return. Varying the N application within a 

field based on site-specific growing conditions can reduce over- or underapplication of fertilizers 

(Kitchen et-al. 1992) and increase the efficient use of N (Fiez et al. 1994; Sawyer 1994). 

Prato and Kang (1998) evaluated the economic and environmental impacts of variable and uniform N application for 35 sample fields in Goodwater Creek watershed. First, a soil type analysis 

evaluated the differences across the 10 soil types in the 35 sample fields. Second, a field-level 

analysis evaluated the differences across the 35 fields. 

On the same soil type, variable application generally produced higher returns, but often also led 

to higher nitrogen and phosphorus losses in runoff. These differences were more pronounced 

for rotations of row crops (corn and soybeans), and less likely with rotations involving sorghum 

and wheat, where uniform application was more profitable. These results generally held when 

comparing across fields composed of different soil types, as well. Overall, variable-rate application 

increased both net return and nutrient losses to the environment for row-crop rotations, but 

produced mixed or negative results with close-grown crops. 
Chapter 2: Problem Setting and Methods I I 

The study results indicated that the profitability and water quality benefits of variable application 

are sensitive to the distribution of soil types in a field and with crop rotation. Despite the intuitive logic of matching nitrogen application to site-specific crop needs, variable application was 

not uniformly superior to uniform application in terms of increasing net return and improving 

water quality in Goodwater Creek watershed. 

2.3.2 Restoring Wetlands to Reduce Nitrogen Loss 

Case studies of the economics of wetland restoration have generally focused on estimating the 

costs, rather than the benefits, of restoration. They provide some guidance for modeling wetland 

restoration, but are not comprehensive enough to substitute for a systematic modeling approach. 

Heimlich et al. (1989) and Carey et al. (1990) determined that the average easement and restoration costs for a least-cost wetland reserve from restoring hydric cropland ranged from $845 

million for a 1-million-hectare (2.5-million-acre) reserve ($845/ha or $341.95/ac) to $2.4 billion 

for a 4-million-hectare (10-million-acre) reserve ($600/ha or $243/ac) in 1988 dollars. Minnesota, Iowa, and Missouri would have the highest wetland reserve acreage. Several studies estimated the present value of net returns from converting wetland to agricultural land, including 

land-clearing and -preparation costs. These values can be viewed as the opportunity cost (loss in 

net agricultural income) of restoring agricultural land to wetlands. Present values ranged from 

$376/ha ($152/ac) in the Mississippi Delta region (Kramer and Shabman 1986), to $1,573/ha 

($637/ac) in North Carolina (Danielson et al. 1988; Danielson and Hamilton 1989), to $635/ha 

($257/ac) in central Minnesota (Danielson and Leitch 1986). 

The Des Plains kver Wetland Demonstration Project in Wadsworth, Illinois, evaluated the 

economic efficiency and political acceptability of building and managing wetlands for nonpoint 

pollution control in a 182-hectare (450-acre) site (Hey 1988). Restoring 10% of the lost wetlands along the Mississippi kver (2.5 million ha, or 6.2 million ac) in a 15-year period would 

cost $24 billion, or $988/ha ($400/ac). The annual operating cost would be $160 million, or 

$64/h.a ($26/ac). Such a restoration effort would require an annual investment of $247 million. 

Wengrzynek and Terrell (1990) studied several prototype nutrient/sediment control systems for 

controlling nonpoint-source pollution from cropland-namely, watershed land treatment practices, sediment basins, grass filter strips, wetlands, deep ponds, and polishing areas. These systems 

were designed to reduce soluble phosphorus, nitrogen, organic matter, bacteria, and fine sediments in lakes and streams. Construction costs ranged from $14,000 to $22,500 for systems 

between 8.5 and 66 hectares (21 and 163 acres) in size, or $1,647-$341/ha ($667-$138/ac), respectively. Average annual costs of construction and maintenance were $49/ha ($20/ac). 

Prato et al. (1995) evaluated the benefits and costs of converting. cropland in two Missouri 

counties to wetlands. Results showed that conversion was economically feasible when waterfowl 

hunting benefits were high, a restored wetland was enrolled in the Wetland Reserve Program, 

and the landowner received full cost sharing on wetland restoration costs. When hunting benefits are low, wetland conversion is not economically feasible. This study suggests that it would be 

economically feasible for a landowner to convert hydric cropland to a wetland, provided the 

revenue from waterfowl hunting leases on the wetland exceeds wetland maintenance costs. 
CHAPTER 3 

Role of Economics in Policy Analysis 

Economics can play an important role in identifying least-cost policy strategies that produce the 

water quality that society desires. An economic framework provides a foundation for coordinating policy formulation among different layers of government, as well as ensuring consistent, fair, 

and unifylng policies across geographic space. Because correcting pollutio-n problems often requires changing the behavior of polluters, it is important to have a conceptual model of that behavior. From an economic perspective, polluters operate within a profit-maximizing economic 

framework. Thus, one can think of water quality protection policies as altering some of the economic variables a polluter considers when making daily production decisions. 

Economics is only one of many factors included when public policy decisions are made. This is 

certainly true for environmental issues when the public's values have great influence on policy 

decisions.What follows is a discussion of the economic rationale for our analysis (that also helps 

explain what drives it), as well as identification of some of the assumptions central to this and 

other economic analyses. 

3.1 GOALOF ENVIRONMENTAL POLICY 

The hndamental goal of environmental policy is to get polluters to treat the external costs of 

pollution as a cost of production, a process termed "internalizing the costs." This goal can be accomplished by inducing (through economic incentives, such as taxes and subsidies) or by requiring (through standards and regulations) polluters to internalize the external costs that they 

impose on ~ocietythrough their pollution-related activities.' Ideally, the resulting level of pollution control is an efficient solution, or one where the expected net economic benefits to society 

are maximized. Expected net economic benefits are defined as the private net benefits of production (such as aggregate farm profits) minus the expected economic damage cost of pollution. 

l~hilewe do not discuss this explicitly, existing market distortions that are outside of the regulatory agency's 

control must be taken into account when designing optimal incentives. Otherwise, the performance of incentives 

will be limited. A variety of agricultural policies-such as price floors, target prices, and deficiency paymentsthat are designed to support farm income also have the effect of stimulating production. The resulting use of 

more chemical inputs and more intensive land use may lead to increases in nonpoint-source pollution 

(Miranowski 1975; Reichelderfer 1990a; Ribaudo and Shoemaker 1995). The FAIR program has phased out many 

of these policies, explicitly to reduce market distortions. Other programs, such as acreage retirement programs 

and paid land diversion, are supply-control programs that may help to offset the effects of some support policies. Recently, some supply-control programs and other agricultural conservation programs (e.g., Sodbuster and 

Swampbuster) have been targeted to environmentally sensitive land and linked to agricultural support policies. 
Chapter 3: Role of Economics in PolicyAnalysis I 3--

Note that decisions must be made based on the expectation of damage levels because, when decisions are made, it is impossible to accurately predict damages due to the varying nature of pollutant runoff and transport. Consequently, the efficient solution is often referred to as the ex 

ante efficient solution, meaning that it is the expected outcome as opposed to the actual or realized outcome. 

3.1. I Efficiency and Benefit-Cost Analysis 

The economically efficient solution to pollution problems can be defined by three conditions: 

For each input and each site, the marginal net private benefitsfrom the use of an input on 

the site eyual the expected marginal external damages due to the use ofthe input. The last 

unit of the input used in production should provide an equal increase in net private benefits and expected damages. This condition is violated, and an economically efficient outcome is not achieved, when farmers ignore the benefit-damage trade-offs associated with 

most input use. The result is higher (lower) use of pollution-causing (-mitigating) inputs 

and runoff levels that are above the economically optimal level. -

An acre of land should be brought into production as long as profits on it are larger than the 

resulting expected increase in external damages. Under this condition, the benefits (or 

profits) from allowing an acre of land into production should exceed the expected social 

costs of the production activity. This condition defines the optimal amount of land in 

production. Marginal acreage is defined as land where the profits from production activity equal the activity's expected contribution to damages in the efficient solution (i.e., it is 

on the margin). Acreage where production activities generate a positive (negative) difference between profits and expected damage contribution is defined as infra-marginal 

(extra-marginal). From an economic perspective, it is only efficient for the marginal and 

infra-marginal acreage to be in production. 

Technology should be adopted on each site such that the incremental impact of that technology on profits (relative to the next-best alternative) is greater than or eyual to the incremental impact on expected damages. 

These three efficiency conditions directly address the need to recognize economic trade-offs involving farm profitability and water quality. Together, the condicons imply that farmers must 

sacrifice some profits to improve water quality if they are currently operating at maximum efficiency and only considering their private costs, all else remaining the same. The challenge is to 

define an analytical framework that can be used to guide the choice of a policy alternative that 

will achieve the socially optimal trade-off. Benefit-cost analysis is such a framework. 

Benefit-cost analysis is an analytical approach that, in principle, eliminates individual and group 

biases associated with decision making by heuristics, intuition, or consensus. Given an objective 

of maximum net economic value or economic efficiency, benefit-cost analysis provides a set of 

definitions and procedures for measuring benefits and costs and determining optimal policy 

(Freeman 1994). In doing so, benefit-cost analysis has the potential to rationalize policymaking 

and ensure the optimal outcomes of policy decisions (Fisher et al. 1986). Promoted as the empirical technique of choice for determining many policy decisions (e.g., U.S. Executive Order 

(E.O.) 12291, 12866), benefit-cost analysis has a firm foundation in microeconomic theory and 

management accounting practice, particularly when assessing the net value of a policy or project 

when the underlying objective is economic efficiency (Dasgu~taand Pearce 1972; Mishan 1977; 

Sassone and Schaffer 1978; Thompson 1980; Gramlich 1981; Sugden and Williams 1985). 
I4 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf 

Of course, most resource and environmental policy is not based primarily on economic efficiency 

criteria, either because decision makers have additional objectives (e.g., equity considerations, intergenerational effects, social risk aversion) or because the information base required to define all 

the benefits and costs cannot be obtained. Thus, benefit-cost analysis might be best thought of 

as a set of procedures to help organize the available information, rather than a straightforward set 

of decision rules (Freeman 1994). While this perspective on benefit-cost analysis does not attempt to define the ultimately rational policy choice, it is capable of meeting the basic requirements of E.O. 12866: analyses that are economically sound, are based on appropriate data and 

methods, are correctly interpreted, identi@ all affected parties, and estimate, where possible, all 

relevant costs and benefits (Schaub 1997). The level of sophistication and method in benefitcost analysis can range from simple comparisons of directly and readily measurable financial factors to multifaceted techniques that incorporate tangible and intangible factors (Clarke and Stevens 1997). In general, all benefit-cost analyses attempt to identify and measure the benefits and 

costs attributable to a policy and to compute the policy's net value (OMB 1996). 

3.1.2 Cost-Effectiveness Analysis 

Although pure Pareto efficiency and decision malung based on benefit-cost analysis comprise 

the conceptually ideal approach for addressing pollution problems, efficiency is not generally attainable in practice if the damage and/or pollution-transport functions are unknown or poorly 

understood, as is generally the case with nonpoint-source pollution. While these problems do 

not prevent the design of economically sound pollution control policies, they do require that 

policies be based on alternative objectives. Baumol and Oates (1988) suggested designing pollution control policy to meet an emission or ambient pollution target when damages are unknown. For example, without information on damages, the regulatory agency's goal when 

designing policy would be to attain a mean ambient water quality goal at least cost; alternatively, 

without information on pollution transport to water resources, its goal would be to attain specific mean runoff goals at least cost. 

Cost-effective solutions are not Pareto-efficient because water quality damages-and, thus, the 

benefits from reducing pollution-are not a consideration (since they are unknown) (Shortle 

1987, 1990). As a result, the traditional benefit-cost analysis is truncated in that benefits of proposed policy actions may not be measurable, given available information. In these cases, a costeffectiveness analysis is designed to provide information about the economic trade-offs associated 

with different types of management strategies. Cost-effectiveness analysis is considered appropriate whenever it is impractical or impossible to consider the monetary value of the benefits provided by alternative policies (OMB 1992). Under a cost-effectiveness analysis, a policy can be 

considered cost-effective if, on the basis of life-cycle cost analysis of competing alternatives, it is 

determined to have the lowest costs for a given amount of benefit, however benefit is defined. 

3.1.3 Second-Best Policies 

The potential complexity of efficient or cost-effective nonpoint source pollution policies can 

make their administration and implementation difficult and costly. At a minimum, the regulatory agency would need perfect information about the production and runoff functions for each 

site. Some optimal policies are site-specific and require the regulatory agency to perfectly monitor 

technology and input usage on each site, including those inputs that are not sold in the market. 
Chapter 3: Role of Economics in PolicyAnalysis 1 5--

The costs associated with obtaining the necessary information for determining and applying 

site-specific policies and monitoring input usage and technology choices can be substantial. 

These costs are relevant and should not be ignored when a potential policy is designed or analyzed. Under these conditions, the costs of obtaining an efficient ,or cost-effective outcome 

should be weighed against the decreased benefits that may result from taking a more uniform, 

but informationally less intensive, approach to policy design. Policies that are specifically designed to reduce information and administrative costs at the expense of efficiency or costeffectiveness are referred to as second-best policies.2 Most, if not all, nonpoint-source pollution 

policies can be considered second-best polices. 

3.2 POLICY-RELEVANTCHARACTERISTICSOF 

NONPOINT-SOURCEPOLLUTION 

The defining characteristics of nonpoint-source pollution, which are described in this section, 

are important because they will influence the performance of various pollution control options. -

3.2.1 Observability of Runoff and Loadings 

Some important aspects of agricultural nonpoint-source pollution are difficult to measure, as in 

the inability of regulators (and farmers) to observe runoff from a field and loadings into water 

systems. Also, monitoring the movement of nonpoint-source pollutants is impractical or prohibitively expensive. Impacts on ambient water quality can be observed, but because nonpoint 

pollution is generated over the land, enters water systems over a broad front, and has substantial 

natural variability, it is generally impossible to use ambient quality measures to make inferences 

about where pollutants enter the water and from which cropland the pollutants originate. 

The inability to observe loadings would not be such an obstacle if there were strong correlation 

between ambient quality and some observable aspect of the production process. For example, the 

quality of a shallow aquifer that is entirely overlain by cropland is directly related to how the 

fields are managed. A policy could then be directed at the production process with a reasonable 

expectation of the water quality impacts. However, such correlations do not often exist, and 

where relationships can be established, they are unlikely to hold up across a range of conditions. 

Because regulators cannot infer producers' actions by observing the state of water quality, they 

are uncertain-as to whether poor water quality is due to nonpoint sources of pollution failing to 

take appropriate actions or to undesirable states of nature (e.g., high rainfall) (Malik et al. 1992). 

Finally, observations on the use of production inputs, which are critical for predicting or forming 

expectations about nonpoint-source pollution, may also be unobservable or prohibitively expensive to monitor. For example, there is a close correlation between the chemical contamination of 

ground water and the amount of a chemical applied and soil type. The chemical characteristics 

of the pesticide, soil characteristics, and soil depth to ground water can all be determined. However, chemical application rates and timing are generally not observable to a regulating agency 

without costly and intrusive monitoring. Producers have a special knowledge about their operations that they may not willingly share with potential regulators. 

2~fficientpolicies are first-best. Cost-effective policies are also technically second-best because they are inefficient. For simplicity and consistency, we distinguish between cost-effective and alternative second-best policies. 
16 Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf 

3.2.2 Natural Variability and Pollution Flows 

The nonpoint-source pollution process is influenced by natural variability due to weather-related 

events (e.g., wind, rainfall, and temperature). As a result, a particular policy may produce a distribution of water quality outcomes, rather than a single outcome (Braden and Segerson 1993). 

This by itself does not prevent attainment of ex ante efficiency through the use of standard policies. However, it greatly complicates policy design. For example, nearly all soil erosion occurs 

during extremely heavy rain events. Practices that control erosion from "average" rainfalls but fail 

under heavy rain events will likely be ineffective in protecting water resources from sediment. In 

addition, natural variability may limit the effectiveness of models in predicting relationships between production decisions and water quality, especially if the models are based solely on knowledge of production decisions. 

Natural variability has important implications for cost-effective policies that attempt to achieve 

ambient or runoff targets at least cost. The natural variability of the nonpoint pollution process 

limits policies from being able to attain specific targets. Instead, as mentioned above, policies 

produce a distribution of results. Therefore, runoff and ambient targets must be specified, along 

with the reliability with which that goal is to be achieved (Shortle 1987, 1990). For example, the 

goal can be defined in terms of mean pollution levels. Alternatively, a nutrient control policy may 

require that an ambient goal of 10 mg/l be met for 75% of the samples taken during a year. 

3.2.3 Heterogeneous Geographic Impacts 

The characteristics of nonpoint-source pollution vary over geographic space due to the great variety of farming practices, land forms, climate, and hydrologic characteristics found across even 

relatively small areas. This site-specific nature of nonpoint pollution has important policy implications. For example, even if models could be developed to measure runoff and loadings, they 

would have to be calibrated for the site-specific quahies of each individual field. The information required for such calibration would be significant and possibly unavailable. Therefore, consideration of the spatial characteristics of cropland, pollution transport, and dispersion of 

pollutants introduces additional uncertainties into the estimation of loadings into water resources 

(Miltz et al. 1988). Because of these difficulties, flexible policy tools that can provide optimal 

pollution control under a variety of conditions would have advantages over tools that are not selfadjusting (Braden and Segerson 1993). 

3.2.4 Transboundary Effects 

The effects of agricultural nonpoint-source pollution can often be felt far from their source. 

Chemicals with long half-lives and sediment (conservative pollutants that tend to maintain their 

properties in a water environment) can affect water users far from where they originate. For example, much of the herbicide atrazine and nitrates that enter the Gulf of Mexico each year via 

the Mississippi River are applied to cropland in the upper Corn Belt states of Minnesota, Iowa, 

and Illinois (Goolsby et al. 1995). 

3.2.5 Uncertain Water Quality Damages 

As with most types of pollution, the economic damages associated with water quality impairment are often difficult to observe or ascertain. Knowledge of the relationship between economic damages and water pollution is essential for establishing water quality goals or incentive 
Chapter 3: Role of Economics in PolicyAnalysis I 7 

+-

levels that maximize societal welfare. Adding to the difficulty is the fact that the impacts of pollution on water quality are often nonmarket impacts. For example, the nitrification of Chesapeake Bay is believed to reduce the bay's submerged aquatic vegetation levels. Though there is no 

market for submerged aquatic vegetation, it has economic value becayse it provides habitat for 

economically valuable fish populations, among other things. 

Without organized markets, information on the value of water quality may be difficult to obtain. 

Even if these impacts are observed and can be attributed to specific sources, valuation requires the 

use of a nonmarket valuation technique, such as travel cost or contingent valuation (Ribaudo and 

Hellerstein 1992). However, such exercises are both time-consuming and costly, and their reliability is questionable. 

3.2.6 Time Lags 

The movement of a pollutant off a field to the point in a water system where it imparts costs on 

water users may take a considerable amount of time. Time lags of this sort have two policy implications. First, observed ambient water quality conditions may be the result of-past management 

practices, or of polluters who are not longer in operation. Second, the results of a policy may not 

be immediately apparent, making it difficult to assess its actual effectiveness. 

3.3 ECONOMIC CONSIDERATIONS IN SELECTING 

POLICY 1 NSTRUMENTS 

Policy instruments for controlling water pollution that have been considered or tried at the federal, state, or local level fall into five general classes: economic incentives, regulation, education, 

liability, and research and development. Policymakers must consider a number of important economic, distributional, environmental, and political characteristics when selecting one of these 

instruments. 

3.3.1 Economic Performance 

The instruments differ in their ability to maximize net social benefits by correcting an externality. Some may only be able to achieve a second-best solution because external pollution costs are 

not fully accounted for when production decisions are made. The policy instruments also distribute costs of pdUution control differently among polluters and between polluters and the rest of 

society. For example, subsidies place the burden of pollution control on taxpayers, while taxes 

place the burden on polluters. 

3.3.2 Administration and Enforcement Costs 

The costs of administering and enforcing a water quality protection policy are related to a variety 

of factors, including the nature of the pollution problem, the legal system, and the information 

required to implement an instrument efficiently. These costs have particular importance for policies aimed at controlling nonpoint-source pollution. 

Nonpoint runoff is difficult to monitor due to its stochastic and diffuse nature. Likewise, ambient concentration measurements and chemical loss estimates may be subject to error. In addition, while it is straightforward to monitor the use of purchased inputs, it may be difficult to 

monitor the use of all polluting inputs. If the costs of detecting noncompliance are too high, 
8 8 Economic Costs and Benefitsof Reducing:Nutrient Loadsto the Gulf 

polluters will be able to avoid compliance, and the effectiveness of the policy will be degraded 

(Braden and Segerson 1993). Thus, the policy's administration and enforcement costs need to be 

weighed against its potential environmental benefits. 

3.3.3 Flexibility 

Flexibility refers to a policy instrument's ability to provide effective control in the face of changing economic conditions (e.g., changes in input and output prices or the availability or new 

technologies), changing environmental conditions (due to the stochastic and highly variable 

nature of nonpoint pollution), and heterogeneous physical conditions (due to the site-specific 

nature of nonpoint pollution). To the extent that agricultural nonpoint pollution and resulting 

water quality impacts are a function of these changes, policy tools that can adjust without regulator intervention will be more efficient over the long run than those that require regulators to 

mzke the adjustments. 

3.3.4 Innovation 

A desirable characteristic of a policy instrument would be its ability to encourage and reward 

farmers for using their unique knowledge of the resource base to find better ways of meeting 

policy goals (Shortle and Abler 1994; Bohm and Russell 1985; Braden and Segerson 1993). Instruments that provide these incentives are more likely to achieve cost-effective control than 

those that do not. 

3.3.5 Political and Legal Feasibility 

Even though a number of policy instruments are capable of achieving an economically efficient 

outcome, they may not be perceived to be equal for legal or political reasons. The difficulty in 

observing nonpoint runoff may be a source of legal problems for instruments using runoff or 

ambient quality as a base. For example, it may be difficult to hold individual farmers legally responsible for observed water quality damages when the sources of nonpoint pollution cannot be 

observed. The stochastic nature of nonpoint pollution also makes it difficult to accurately infer 

damages or runoff based on farm practices (Shortle 1984; Tomasi et al. 1994). In addition, ambient pollution levels may be the result of past management decisions due to time lags involved 

with the pollution transport process. Thus, some contributors to the ambient pollution level may 

no longer be in operation, possibly leaving current farming operations to unfairly bear the burden 

of remediation. 

An instrument's political feasibility also may be related to ethical and philosophical arguments. 

For example, farmers may believe that their right to farm gives them the right to pollute (within 

reasonable limits). Taxes and permits may be politically unpopular among farmers because they 

shift pollution rights from farmers to the victims of pollution. Alternatively, a subsidy shifts pollution rights to the farmers. This position may be protested by the victims of pollution and by 

industries that are legally required to reduce pollution. In an era of widespread anti-tax sentiment, a tax-based environmental policy may be impossible to implement, despite desirable efficiency characteristics. 
Chapter 3: Role of Economics in PolicyAnalysis 1 9-

3.3.6 Implementation Basis 

The basis on which a policy instrument is implemented has a bearing on its performance. The 

basis refers to the point in the pollution stream to which the instrument is applied. Instruments 

can be applied either to farmers' actions or to the results of their actions. For point sources, the 

preferred basis is discharge because it is directly related to water quality and is easy to observe 

(Baumol and Oates 1988). However, the choice is not so clear for nonpoint sources due to the 

difficulties associated with monitoring and controlling runoff from cropland and loadings to 

water resources. 

Potential bases that have been proposed for nonpoint pollution include ambient pollution levels, 

expected runoff levels, input use, technology, and output. Policies that control variables most 

closely correlated to water quahty are preferred to those that are more indirectly related (Braden 

and Segerson 1993). Runoff and ambient pollution concentrations are two bases that are closely 

related to water quality. Policy bases, such as output, are not likely to be highly correlated with 

water quality. Directing policy instruments at bases that are only indirectly correlated with water 

quality may lead to unrelated effects and inefficient management. 

Design-based policies are based on observable aspects of production, such as variable input use or 

choices of production technologies. Such policies can achieve effective control if they include all 

factors of production that can affect water quality and if they take into account local agronomic 

and hydrologic conditions (Ribaudo et al., in press). The costs of doing so, however, are often 

prohibitive. Alternatively, second-best, design-based instruments could be applied to a limited 

(truncated) set of inputs and/or technologies, and applied uniformly within a region. They could 

also be designed with limited information on the part of the regulatory agency to help control 

administration costs. Such instruments may be effective in controlling nonpoint pollution if the 

inputs/technologies chosen as bases are highly correlated with water quality. 

For a given instrument base, economic incentives (taxes and subsidies) or standards can be used 

to achieve identical policy goals. However, use of each instrument type will most likely have different distributional consequences for farm profitability. Distributional disparities will be greater 

the greater the heterogeneity of land, the more uniformly instruments are applied across a region, and the more uncertainty the regulatory agency has about farm-specific information when 

designing policies. In general, incentives provide more flexibility than standards because farmers 

are free to adjust their production practices to take advantage of personal knowledge and to react 

to changing market conditions. Standards provide more certain control when uncertainties in 

the relationships between production and water quality are high. 

Incentives and standards will also have different administrative characteristics. The information 

required by the regulatory agency in setting design-based standards and incentives is very similar. 

However, monitoring may be easier for incentives that can be applied through existing markets. 

For example, a uniform fertilizer tax can be implemented as a sales tax, whereas a fertilizer standard requires that each farm be monitored for fertilizer use. Taxes also have the additional advantage of generating revenue that could be used for supporting the administration of the water 

quality policy for funding supporting programs, such as education and research; or for retiring 

marginal land. For example, the sales tax on fertilizer in Iowa is currently being used to support 

the state's nutrient management programs. While the tax rate is currently too low to be called an 

environmental tax, research and education efforts may be increasing the efficiency of fertilizer 
20 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf 

use. That the nitrogen fertilizer application rate on corn is much lower in Iowa than for the 

other Corn Belt states is circumstantial evidence that research and education are having an effect 

(USDA 1996). 

It is not possible to make a general statement about the relative pkrformance of incentives and 

standards in a world with asymmetric information and second-best policies. There are situations 

in which each is preferred. Shortle and Dunn (1986) compared the use of input standards and 

input incentives applied to a single farm and designed to achieve an efficient solution when 

asymmetric information exists. Ignoring transaction costs, they found that appropriately specified input incentives should generally outperform input standards and expected runoff incentives 

and standards, given the characteristics of nonpoint-source pollution and the information typically available to a regulatory agency. These results, however, do not necessarily carry over to the 

case of multiple farms and/or second-best policies, where administration costs are considered. 

Weitzman (1974) examined price and quantity policies under asymmetric information and 

showed that, where the marginal cost curve is nearly flat, an error in setting a tax could result in 

large deviations from the desired result, malung standards the preferred instrument. Alternatively, when the benefit function is closer to being linear, price-based policles are superior. Stavins (1996) showed the choice to be more complex when the uncertainty associated with the 

benefits and costs of pollution control is correlated. A similar analysis applies when uniform policies are used when heterogeneities exist. Generally, each situation must be assessed individually. 

Helfand and House (1995), found uniform input taxes to result in lower welfare costs relative to 

input standards when attempting to meet a desired water quality goal. These results held for 

taxes and standards applied to all inputs contributing to pollution, and also for the case of a truncated input base. Lichtenberg (1992) found that standards may be preferable to incentives when 

a specific input-reduction goal is desired. For example, a standard would be preferred in a situation where a particular chemical is clearly detrimental to water quality and application rates need 

to be limited, or the chemical banned from use. Setting a tax to optimally meet an inputreduction goal requires knowledge of the farm-specific demand for that input. Such information 

is not likely to be available to a regulatory agency. Design standards, in the form of input use 

limits, would be much easier to implement in this case, even though the distributive properties 

might be poor. Other examples where design standards might be preferred include chemigation 

(using irrigation equipment to apply chemicals along with water), chemical use on sandy soils, 

the use of vegetative buffers, and animal waste storage and use. 

One concluJion from the above review would be that the differences in agriculture and hydrology across regions probably do not favor a single policy tool. Multiple instruments have a role 

when a single instrument is inefficient because of the characteristics of nonpoint-source pollution (Braden and Segerson 1993). In his study of price- and quantity-based policies, Weitzman 

(1974) concluded that mixed pricelquantity policies may give the best results in some situations, 

depending on the characteristics of the polluters and receiving waters. In a review of pollution 

policy tools, Baumol and Oates (1979) conclude that "effective policy requires a wide array of 

tools and a willingness to use each of them as it is required." 

Abler and Shortle (1991) reviewed the merits of a variety of tools (including education, design 

standards, performance standards, input taxes, input subsidies, performance taxes, and research 

and development) for reducing agricultural nonpoint-source pollution. Using a set of evaluation 

criteria based on both economic and administrative attributes, they could not identify a single 

dominant tool. Each had its strengths and weaknesses. Which tools are actually preferred in a 

particular setting depends on the weights applied to the various attributes. 
Chapter 3: Role of Economics in Policy Analysis 2 T' 

Shortle and Abler (1994) evaluated a mixed scheme consisting of marketable permits for polluting inputs, combined with a tax on excess input use and a subsidy for returned permits. Such a 

scheme can be implemented without the use of information on farm profits or off-site damage 

costs. This approach was generally shown to be preferred to policie? based solely on design incentives. Optimal implementation could still entail large administrative costs, but the 'structure 

should offer opportunities for increased efficiency over input-based tax and license schemes that 

have been suggested as potential policies. 

Under Executive Order (E.O.) 12866, agencies determine whether a potential rule or regulatory 

action is "significant" and therefore subject to the requirements of the E.O., which include 

drafting an economic analysis and review by the Office of Management and Budget (OMB). 

While the Gulf of Mexico Hypoxia Assessment is not itself a rule-making or regulatory activity, 

analysis of the economic impacts of hypoxia and potential actions for its mitigation in the Gulf 

would almost certainly involve some form of federal intervention. -

Federal intervention could take many forms and would most likely interact with current state 

and federal ambient water quality criteria and designated uses for inland surface waters, enclosed 

bays, and estuaries. Thus, the economic analysis of hypoxia in the Gulf of Mexico was designed 

to be relatively broad in scope, seeking to identify major benefits and costs by using available information and numerical models. 

Given the scope of this assessment, the economic analysis requires assumptions about the source 

of benefits and costs associated with hypoxia and hypoxia mitigation, as well as how mitigation 

activities might be implemented. The assumptions used in the analysis were based on standard 

practice within the economics profession, information provided by other groups participating in 

the hypoxia assessment, and past experience with mitigation activities associated with large watersheds. To account for some of the uncertainty in these assumptions, we estimated a range of 

scenarios that may be used to bracket the likely effects of hypoxia and hypoxia mitigation activities. In addition, we attempted to qualitatively identify potential benefits and costs that could not 

be estimated due to a lack of information or relevant research, but that may be useful in directing 

future research associated with hypoxia. 

3.5.1 A Cost-Effectiveness Economic Analysis 

An immediate difficulty with conducting an economic analysis of Gulf of Mexico hypoxia concerns the lack of measurable benefits (and thus the benefits side of a benefit-cost analysis calculation) that may accrue from reduced hypoxia. The Topic 2 report examined historical timeseries and geographical data to discern the effects of hypoxia on the Gulfs ecosystem and fishing 

industry over the last 30 years. This assessment suggested that given the available data, no effect 

in the shrimp, snapper, or menhaden fisheries data could be attributed with high confidence to 

hypoxia. They also noted that the failure to identify hypoxic effects in the fisheries data was 

consistent with the results of the broader ecological study conducted by the group. 

It is worth emphasizing, as did the Topic 2 report, that failure to identify hypoxic effects in the 

commercial fisheries data does not mean that they do not exist. But, if hypoxic effects do exist, 

their magnitude must be small in relation to other sources of variability in the data. Another 

constraining factor was that the data needed to identify indirect and nonmarket effects of hy-
22 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf -. 

poxia, such as its impact on tourism and recreation, were not readily available for the Gulf. In 

addition, the inability to identify hypoxic effects in the historical data does not imply that larger 

effects would not occur should hypoxia continue or expand in the Gulf. In fact, experience in 

other geographic areas indicates that the effects of hypoxia becoqe progressively greater as the 

frequency and extent of hypoxic events expand (Caddy 1993). 

Nonetheless, given the lack of measurable economic benefits from reduced hypoxia, the economic analysis undertaken below was restricted to a cost-effectiveness analysis that sought to 

identify least-cost policies for attaining a representative reduction in nonpoint nitrogen runoff to 

the Gulf. The fured target level of a 20% reduction in nitrogen loss was suggested by the Topic 5 

team as a reasonable level that could be attained given current technology and that could decrease 

the incidence of hypoxia in the Gulf. 

3.5.2 Criteria for Choice of Reductions 

Efficacy was an important criterion used by the Topic 5 team when considering different actions to reduce nitrogen loss. While the goal of the economic analysis was-to evaluate and compare the costs and benefits of such reductions to the Gulf, benefits could also accrue within the 

Mississippi kver Basin. Although we are unable to fully document and account for these potential benefits, we have attempted to include them in this discussion as examples of unmeasured or 

unmeasurable factors. Of course, a limitation on the extent of potential in-basin benefits is that 

phosphorus-not nitrogen-tends to be the limiting factor in freshwater ecosystems. Thus, very 

little research has focused on identifying benefits from nitrogen reduction in freshwater systems. 

In conducting the economic analysis, we attempted as much as possible to follow the technological guidelines provided in the Topic 5 report. Where we had existing analytical capacity, we 

simulated a wide range of potential policy options concerning nutrient reduction. This allowed 

us to look at impacts from different reduction levels from a particular action or set of actions. 

Our concern was finding the specific range for the various potential reductions that dld not result in extremely high social or economic costs. While this exercise was independent of the recommendations of the Topic 5 report, the implications of our analysis tended to converge with 

those recommendations primarily on technical considerations of efficacy. 

3.5.3 Background and General Assumptions 

The Mississippi kver Basin encompasses the bulk of the agricultural land area devoted to basic 

agricultural commodities. A comparison of the crop acreage within the basin and across the entire U.S. reveals that the land in the basin comprises the bulk of quality rain-fed land east of the 

critical 100-degree meridian, or 22-inch rainfall line. As the maps from the Topic 3 report show, 

it is also the area of highest nutrient use across broad sections of the landscape. 

Each specific policy simulation conducted as part of the economic analysis has a specific set of 

assumptions, which are detailed with the analysis. In addition, the analysis used the following 

important general assumptions: 

The current "reformed" agricultural policy will continue, where producers are free to 

make choices about the crops they grow and where acres are not taken out of prodilction 

just to regulate supply. 
Chapter 3: Role of Economics in PolicyAnalysis 23' 

The analytical model upon which the policy simulations are based assumes profitmaximizing behavior by the producers. This assumption also implicitly, if not explicitly, 

conditions our analysis of the simulation results and our judgments concerning producer 

or individual firm reactions to policy options. I 

The Mississippi River will continue to be a critical transportation corridor, and the basin 

will have a stable hydrology. Dredging and lock and dam maintenance will continue, 

constraining (to some extent) the potential policy options. 

From nonpoint sources, such as soils under fertilization, there can be substantial time lags 

before actions like reductions in nitrogen fertilization are reflected in reduced nitrogen 

loss from the soil. This is a critically important and uncertain factor when assessing the 

efficacy of a practice or activity in reducing nitrogen losses to the river system. We also 

recognized that the effects of changing policies or placing new activities or practices in 

operation are likely to be measured in years rather than months. 

The baseline used for investigating potential benefits in the Gulf is detailed in the Topic 

2 report, but was essentially the status quo in the Gulfs commercial fnhing industry. The 

numerical baseline used for empirically estimating the costs of nutrient-reduction strategies to agricultural industries in the Mississippi Basin was described in this chapter. The 

U.S. Mathematical Programming (USMP) model served as the baseline for estimating 

both the costs of the nutrient-reduction strategies and the benefits to water resources 

within the basin (but not in the Gulf). 
CHAPTER4 

Costs of Alternative Control O~tions 

The most tractable strategies for reducing nitrogen runoff to the Mississippi River system involve 

altering the use of nitrogen fertilizer inputs (which can be observed), or enhancing the landscape's ability to filter nitrogen that "leaks" from cropland. In this chapter we assess both the 

costs of alternative fertilizer management strategies and the strategies for expanding the acreage 

of restored wetlands and riparian buffers and thereby increase nitrogen filtration. -

If hypoxia reduction is attempted by policy initiatives that decrease nutrient loadings to the Gulf 

of Mexico, then substantial nutrient management costs are likely to be borne by agricultural industries in the Mississippi Basin. Assuming constant levels of efficiency, decreased nutrient use 

must lead to reduced agriculturalproductivity in the basin and to reduced total production activity 

as marginally fertile land is retired. If increased nutrient management efficiency is assumed, then 

the adoption of alternative technologies may raise the total cost of production and lower the basin's total output. These costs are both direct (associated with forcibly removing low-productivity 

acreage from production) and indirect (in terms of the economic impacts on the supply sector 

generated by reduced demand for purchased agricultural inputs). In either case, production activity could shift to areas outside the basin, and with the production activitywould go the associated 

nutrient use. This increased nutrient use in the rest of the U.S. could generate costs similar to 

the costs of hypoxia, although the exact nature of the impact will depend on the ecological 

structure of the receiving waters. Increased agriculturalproduct prices should also be considered a 

potential cost, borne by consumers throughout the U.S., as long as the land retired in the Mississippi Basin is not compensated for by increased production on remaining land in the basin or 

the rest of the U.S. Of course, increasing product prices imply that some of the nutrient management and land retirement costs to producers may be offset by increasing gross revenues. 

We simulated the sector's response to these alternative management strategies with the U.S. 

Mathematical Programming (USMP) model of the nation's agricultural sector (described in the 

following section). The analysis of alternative fertilizer management strategies relies solely on 

USMP; the analysis of the various filtering options uses both a screening procedure to identify 

the acreage to be restored to wetlands or buffers, and USMP to analyze the economic impacts 

on the agricultural sector of removing this land from production. Environmental impacts for 

field-level changes-such as changes in rotations, tillages, and fertilizer applications or retirement from croppinrare estimated in USMP based on EPIC (Erosion Productivity Impact 

Calculator) simulations. (See Appendix C for hrther discussion of EPIC.) Nitrogen reductions 

from intercepting runoff with restored wetlands or riparian buffers are estimated outside USMP 

based on values from the literature identified in Chapter 5 of this report. 
Chapter 4: Costs of Alternative Conti;dl Options 25 

4.1 USMP MODELFOR AGRICULTURE 

The USMP model was developed by USDA's Economic Research Service to analyze the effects 

of government commodity programs and environmental policies on Ithe U.S. agricultural sector 

and the environment. It captures the effects of these policies on commodity prices and quantities, net returns to producers, net social benefit, and environmental emissions. It covers 10 crops 

(corn, sorghum, oats, barley, wheat, rice, cotton, soybeans, hay, and silage) and some 16 live 

animal products, the principal being associated with dairy, swine, poultry, and beef cattle. Several dozen processed and retail products are also represented, including dairy products, pork, beef, 

soybean meal and oil, and livestock feeds. Markets represented include domestic use (food, industrial uses, and livestock feed), trade (import and export), and inventory (commercial and government). The model explicitly recognizes that these effects will most likely vary significantly 

across the country, and that this variation needs to be taken into account, especially with respect 

to analysis of environmental issues, by dividing the U.S. into 45 production regions. The 

boundaries of these regions are defined by the intersection of the 10 USDA farm production regions and USDA land resource regions. -

A key feature of USMP that makes it well suited for this analysis is that it explicitly represents 

the various management practices used by farmers to produce crops in each production region. 

These practices consist of crop rotations, which can include up to four crops (including hay and 

fallow); tillage practices (conventional, conventional with moldboard plow, mulch, ridge till, and 

no till); and reductions in fertilizer application (Table 4.1). Fertilizer is applied in single or split 

applications and at rates varying continuously up to 60% from baseline levels, depending on the 

predominant practices in a region. Overall, nearly 2,400 individual production technologies representing distinct management alternatives are represented in the model. Thus, crop production 

can adjust to restrictions placed on nitrogen or land use by altering any or all of the following: 

acreage planted, crop mix, rotations used, tillage practices, and fertilizer application rates. 

The management practices and the acreage devoted to them were identified from information 

contained in the 1992 National Resources Inventory (USDA 1995a), the Cropping Practices 

Survey (USDA 1995b), and the Farm Costs and Returns Survey (USDA 1995b). These USDA 

surveys were all designed to be statistically representative of their target populations. As a result, 

the set of production technologies used in USMP is representative of current management practices. 

USMP also contains a set of associated environmental emission indicators for each of the management practices represented in the model. This includes soil erosion (both water and wind), 

nitrogen loss (leaching, runoff, and atmospheric), and pesticide loss, as well as indicators of soil 

depreciation and greenhouse gases. 

USMP is a comparative, static price, endogenous, spatial equilibrium model based on an extension of the methodology found in McCarl and Spreen (1980). It uses a set of nested non-linear 

allocation functions to represent the substitution possibilities among production techniques. 

These functions derived from those relationships, both technical and economic, are derived from 

neoclassical theory. As a result, production practices can adjust to incentives based on changes to 

their net returns without placing bounds or flexibility constraints on their use. 
. .

26 Economic Costsand Benefitsof ReducingNutrient Loadsto the ~ulf 

TABLE 4.1. Illustrative cropping systemsin the USMP model, by USDAtbm production region.' 

Nitrogen leaching 

Nitrogen loss in solution 

Nitrogen loss in sediment 

Nitrogen leaching 

Denitrification 

Nitrogen lois in solution 

Nitrogen loss in sediment 

Nitrogen leaching 

Denitrification 

'Cropping systems are specific to each of 45 USMP-producing regions (farm production region and land resource 

region combinations) and representative soils, totaling nearly 2,400 cropping activities. 

'Mi3 = moldboard. 

3Nitrogen applications can vary continuously in reductions of up to 60% from baseline levels for each cropping system, and can include split applications on corn. 

Source: U.S. Mathematical Programming (USMP) model analysis, Economic Research Service, USDA. 
Chapter 4: Costs of Alternative Control Options 27' 

The base or reference projections used have been developed from the 1997 USDA Economic 

Baseline, the Cropping Practices Survey, and the 1992 National Resource Inventory. For each 

scenario the model tallies-in addition to changes in supply, use, prices, and farm incomechanges in acreage allocated under various rotation and tillage systeps and associated environmental indicators for the nation, the USDA's 10 farm production regions, and 45 sub- or land 

resource regions. See Figure 4.1 for a map of the regions. 

The environmental indicators are estimated using the EPIC biophysical model. EPIC uses information on soils, weather, and management practices, including specific fertilizer rates and 

produces information on crop yields, erosion, and chemical losses to the environment. Management practices and initial fertilizer application rates were set consistent with agronomic practices 

for the 45 regions as reported in the CPS. Yields and environmental indicators were estimated 

by running each of the production activities through EPIC for up to 60 years. This process was 

repeated for nitrogen application rates representing 10%)20%) 30%, and 40% reductions from 

their initial values. The results from the EPIC simulations were used to construct four sets of 

budgets and environmental indicators for each of the initial cropping systems, increasing the total number of crop production activities represented in the model to about 2,400. 

Convexity constraints are used to approximate yield response to nitrogen fertilizer for each cropping system. These constraints permit convex combinations of the specified nitrogen application 

rates to be formed, thereby allowing fertilizer application rates and associated environmental indicators to span the entire range of fertilizer rates simulated. 

In addition to the convexity constraints the selection of fertilizer application rates is affected by a 

risk premium charged to the reduced nitrogen fertilizer application activities. This is based on the 

notion that farmers, given their uncertainty about growing conditions in any year, are behaving 

rationally when they apply a constant amount of fertilizer year in and year out based on a yield 

target. Thus, producers are assumed to operate at that portion of the typical fertilizer response 

curve corresponding to the upper "shoulder" or inflection representing maximum physical yield 

at that level of fertilizer application. In particular, these assumptions regarding fertilizer application rates imply that any reduction in fertilizer application from the baseline will result in reduced physical yield, but not necessarily reduced economic returns. However, this type of 

behavior when evaluated in a partial budgeting framework indicates that farmers could increase 

their returns by reducing the fertilizer application rate. 

. Thus, the risk premium being charged represents the uncertainty cost borne by farmers. It reflects the cost they pay to avoid the censoring of the upper tail of the yield distribution, which 

would occur if they reduced fertilizer application rates. This implies that the only way to get 

farmers to lower their fertilizer application rates is to provide them with an incentive greater 

than the risk charge or to introduce technologies that will reduce their uncertainty about growing conditions. (Another approach being offered on a pilot basis is providing insurance against 

production losses due to low nitrogen levels.) 

The charge used on each system is based on the difference between the net returns realized by 

reducing the fertilizer application rate and that achieved when using the observed application 

rate. This difference is doubled, based on the assumption-farmers will need more than this difference to reduce application rates. This calculation is repeated for each successive reduction in 

the fertilizer rate until the increase in net return calculated is less than the net return of the application rate before it. At this point, the charge is held constant for the remaining reductions in 

application rates. 
28 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf . 

USMP Regions 

FIGURE 4.1. U.S. mathematicalprogramming(USMP) model regions. 

(Data not available for SPD, SPP, SPN, and SEU.) 

These assumptions result in overall fertilizer application consistent with observed data reported in 

Table 1.1of the Topic 5 report and by Goolsby et al. (in press). The USMP baseline has 6.859 

million metric tons of N fertilizer used on crops in the basin, compared with 6.578 million metric tons reported in Table 1.1.USMP N application rates compare closely to application rates 

from the ERS Cropping Practices Survey. 

For the analysis of wetland restoration potential, a hybrid modeling technique was employed, 

combining (1) a screening procedure to identify acreage and production affected by wetland,restoration with (2) an impact analysis conducted using the USMP model. Cropland suitable for 
Chapter 4: Costs of Alternative Control Options 29.' 

restoration to wetland was screened based on profitability, similar to methods reported in Heimlich (1994) and Claassen et al. (1996). All cropland on wetland (hydric) soils in the National 

Resources Inventory, except artificial wetlands and wetland converted in violation of Swampbuster, is assumed to be eligible for enrollment in an expanded wetland restoration program 

(WRP). However, a restriction that no more than 25% of total cropland in a local area (8-digit 

hydrologic unit) be enrolled was assumed. This is similar to restrictions in the Conservation Reserve Program and is intended to minimize impacts on local farm economies. 

The costs of permanent easements are assumed to compensate landowners for the opportunity 

cost of agricultural production on the restored wetland and for all restoration expenses. Easement cost equals full opportunity costs. Opportunity costs are the maximum of the value of crop 

production, pasture, bottomland hardwood forestry, or pine (drained) forestry. A discount rate of 

6% is assumed, and since easements are permanent, an infinite time horizon is used. Landowners 

are assumed to be indifferent to enrolling land in the expanded WRP or continuing crop or 

other agricultural production at these rates of compensation. 

Crop opportunity cost calculations depend on site-specific crop yields derived-fromfive-year average yields in the county, adjusted for a productivity index applied to soil characteristics. Only variable production costs are considered, since WRP enrollment is assumed to be a marginal change 

in farm acreage that will not affect fured costs. No farm program payments are reduced by enrollment in this program. Crop prices assumed are from year 2001 of the February 1997 USDA 

baseline, and do not account for the reduced prices currently prevailing. Restoration costs are 

differentiatedby drainage condition and region (Table 4.2). Administrative costs, including appraisal, survey, recording, and title fees, are estimated to be 3% of easement costs (Misso 1998). 

TABLE 4.2 Cost per acre of land restored. 

Delta and Southeast 

Source: Heimlich et al. 1989. 

For the purposes of this study we divided the 45 USMP regions into two groups: those inside 

and those outside the Mississippi Basin. Because the USMP regions do not follow watershed 

boundaries, the allocation is fairly crude. However, the most important crop-producing regions 

in the Mississippi Basin are wholly included in the USMP interpretation of the basin. Table 4.3 

shows baseline conditions in the model for crop acreage, prices, fertilizer use, pollutant loss, and 

tillage practices. 
. .

30 Economic Costs and Benefits of ReducingNutrient Loads to the ~ulf 

TABLE 4.3. Baseline for the U.S. mathematical programming 

(USMP) model. 

Phosphorus +3.5 11-0.4 1 +4.58/-0.53 

Conventional 13 1.1 

We used the model to perform two tasks. The first was to identify the level of nitrogen-loss 

reduction where agriculture starts to become significantly constrained, in terms of crop prices, 

acreage in production, and exports. Then we used the model to estimate the costs and effectiveness of different strategies for achieving an "acceptable" nitrogen-loss reduction. However, a 

policy cannot be based on nitrogen loss, since it cannot be observed. Instead, a policy must be 

based on those factors of production that can be observed, such as input use, rotations, and tillage 

practices. In either case, the model finds the optimal combination of rotations, conservation 

practices, tillage practices, and fertilizer application rates to meet the stated goal. 
Chapter,4: Costs of Alternative Control Options 3 c' 

4.2.1 Parametric Reduction in Nitrogen 

We used the USMP model to evaluate how the agricultural sectors both within the Mississippi 

Basin and nationally respond to constraints on nitrogen loss from cropland in the basin of 20%) 

30%, 40%) SO%, and 60%. The USMP model calculates only nitroken loss at the edge of the 

field or at the bottom of the root zone. We assumed that reducing edge-of-field or root-zone 

loss would generate a similar percentage reduction in nitrogen loadings to water resources from 

cropland. It is important to note that the nitrogen-loss reductions we modeled are generally beyond the range where farmers can reasonably be expected to be able to reduce fertilizer application rates without reducing physical yields. 

The nitrogen-loss constraints we modeled are for the basin as a whole, and not for each acre. 

Using a basin-wide constraint reduces the cost of the policy over a per-acre constraint, in that it 

allows low-cost areas (in terms of reducing nitrogen loss by one unit) to contribute a greater 

share of achieving the environmental goal. We selected these constraints because they span a 

range of N-loss reductions from what is claimed to be feasible by proponents of "win-win" nutrient management policies (20%)) to a constraint that would severely stress the sector (60%). 

In response to the N-loss constraints, the USMP model adjusted crop rotations, tillage practices, 

and fertilizer inputs within the Mississippi Basin in order to meet the constraint while maximizing welfare. The model favors those crops and cropping practices that have low nitrogen 

"leakage." Where the model cannot find a crop-production system that allows for positive net 

returns, the land is retired from production. Outside the basin, where there are no constraints on 

N loss, farmers are free to respond to price changes. Since the basin is such an important cropproducing region, changes in production are likely to have noticeable impacts on prices. 

We first present the results in terms of the 20% scenario, and use these to highlight how the 

model performed. The 20% scenario produced relatively modest impacts. Within the basin, total 

crop acreage is reduced by about 6%. The impacts on crop acreage and prices at the national level 

are within the range seen over the period 1987-96 for all crops (Tables 4.4 and 4.5). Production 

outside the basin is stepped up in response to higher prices. The rest of the country cannot make 

up all the production losses in the basin, however, because of limitations on acreage and land 

that is generally not as productive. Consequently, prices rise for most crops, which reduces exports for most crops, but not significantly (Table 4.6).3 Net social welfare (producer plus consumer surplus) is reduced by 0.08%, or about $830 mihon (Table 4.7). 

3~heUSMP model results indicate that all the scenarios result in increased imports for some crops, but the impacts in percentage terms are much less than the impacts on exports. 
3 2 Economic Costs and Benefitsof Reducing Nbtrient Loads to the Gulf 

TABLE 4.4. Percentage change in crop acreage as a result of reductionsin N loss. 

-4.2 -1 1.2 -2.1 -6.0 -5.8 

0 0.4 2.8 

-0.1 - 15.7 2.2 -4.4 -7.0 -0.9 -2.9 -6.0 -1.1 -3.5 -3.8 

30% Reduction in N Loss 

-4.5 -38.8 -12.8 -10.8 -20.6 -4.0 -10.9 -19.3 -5.2 -13.0 -13.3 

42.1 2.9 0 1.3 6.0 

-1.6 -24.7 -5.6 -8.8 -17.1 -1.8 -7.5 -10.0 -2.5 -7.6 -8.8 

40% Reduction in N Loss 

62.0 -19.3 -19.1 -31.0 -6.9 -19.1 -12.9 -9.0 -24.4 -21.3 

57.9 5.9 14.3 1 1.3 0 12.5 5.7- 4.2 2.5 10.0 

-3.3 -41.2 -7.3 -15.5 -25.6 -3.1 -13.0 -5.4 -4.2 -14.2 -14.0 

50% Reduction in N Loss 

-16.3 -64.6 -32.3 -26.5 -42.5 -14.9 -30.7 -10.2 -15.6 -46.9 -32.7 

68'.4 1 1.8 14.3 14.4 0 18.3 9.4 8.3 3.8 14.4 

-8.2 -40.8 11.0 -21.3 -35.1 -6.2 -21.1 -2.7 -7.7 -27.6-21.6 

60% Reduction in N Loss 

-26.1 -78.2 -43.5 -39.1 -5 1.8 -40.6 -43.3 '-10.7 -29.3 -63.3 -44.0 

89.4 17.6 14.3 18.6 6.7 27.5 11.3 12.5 5.5 19.4 

'MB = Mississippi Basin; RUS = Rest of U.S. 

TABLE 4.5. Percentage change in crop price as a result of reductions in Nloss. 
Chapter 4: Costs of Alternative Control Options 33 - - -

TABLE 4.6. Percentage change in export volume as a result of reductions in N loss. 

TABLE 4.7. Summary of economic costs of N loss-reduction strategies. 

Fertilizer Reduction 

500% Fertilizer Tax 

Wetlands Acreage1*' 

20% Fert. Reduction 

'Social welfare for wetland strategies includes changes in consumer and producer surpluses, plus wetland restoration 

costs. 

Wetland filtering capacity: I5 g/m2. 

3Buffer fltering capacity: 4 g/m2. 
3 4 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf - -

Increases in net returns are not felt equally by crop and livestock sectors. The livestock sector 

purchases grain for feed, so the increase in prices hurts livestock producers. In looking at these 

two sectors, we had to deal with a minor shortcoming of the model. The income and cost data 

used to build the model cannot be disaggregated to the same level of,geographic detail as the data 

on the physical aspects of agriculture. While the crop acreage, production, and environmental 

factors were all modeled on the basis of the basin, the resulting impacts on farm net returns can 

only be reported on the basis of the multi-state farm production regions. We selected the Corn 

Belt, Northern Plains, and Mississippi Delta regions as most representative of the basin, as defined in the USMP. These three regions contain over 70% of the cropland in the basin. Net 

farm income increases for crop producers in these regions when nitrogen losses are restricted 

(Figure 4.2). However, this does not mean that all farmers within the basin benefit. Those producers who have economically marginal cropland that is not profitable to farm given the N-loss 

constraints suffer a loss in net returns. 

The impact of the 20% N-loss reduction constraint on environmental indicators shows the importance of considering all the impacts of a policy (Figures 4.3-4.5). Nitrogen losses within the 

basin are reduced 20%, as modeled. Adjustments within the basin also result in decreases in 

phosphorus loss and soil erosion. Each of these reductions also generates water quality benefits. 

However, the increases in crop prices result in more intensive production on existing acreage 

outside the basin, and in an overall increase in acreage in production. Without any environmental constraints, nitrogen loss, phosphorus loss, and soil erosion increase in the rest of the 

U.S., to the possible detriment of water quality. 

As the constraint on nitrogen loss is hrther tightened, the economic impacts on the agricultural 

sector rapidly escalate. With a 30% reduction in N loss, crop prices increase above recent levels for 

most crops, and crop acreages are below recent levels. Over 20% of the crop acreage within the 

basin is retired. Exports are significantly reduced, particularly for wheat and corn. The negative 

environmental impacts outside the basin from increases at the intensive and extensive margins of 

agricultural production become more pronounced. For the 60% N-loss reduction constraint, the 

system is severely stressed, in terms of price increases and acreage changes. Prices are 15-50% 

higher than the highest prices seen over the past decade. Crop production ceases on 44% of the 

cropland in the basin. For a 60% reduction in N loss, social welfare is reduced by 2.15%, or $21 

billion (Table 4.7). 

An important consideration in interpreting these results is that the ability of producers to adjust 

to the nitrogen-reduction constraint is limited by the technologies and practices contained in 

the USMP model. If there exist technologies that enable producers to meet nitrogen-reduction 

goals with smaller impacts on yields or production costs, then overall welfare costs would be 

smaller. 
Chapter 4: Costs of Alternative Control Options 35 --

20 30 40 50 

% N loss Restriction 

Crops: U.S. 

eLivestock: U.S. 

* Crops: Corn Belt & N. Plains & Delta 

A Livestock: Corn Belt &N. Plains & Delta 

FIGURE 4.2. Impactsof nitrogen-loss restrictions on producer net returns. 
3 6 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf ' 

FIGURE 4.3. Impacts of nitrogen-lossrestrictionson nitrogen loss. 

-80 I I I I - I 

20 30 40 50 60 

N loss Reduction Constraint 

+ Rest of U.S. Mississippi Basin U.S. Total 

N loss Reduction Constraint 

+ Rest of US. Mississippi Basin A U.S. Total 

.

FIGURE 4.4. lmpacts of nitrogen-lossrestrictions on phosphorus loss. 
Chapter 4: Costs of Alternative Control Options 3 7 -

N loss Reduction Constraint 

Rest of U.S. Mississippi Basin U.S.Total 

FIGURE 4.5. Impacts of nitrogen-loss restrictionson soil erosion. 

4.2. I.l ACHIEVING AN ENVIRONMENTAL GOAL 

After reviewing these results, we selected the 20% reduction in edge-of-field N-loss scenario as 

the one that offers the best combination of sizable nitrogen-loss reductions and acceptable economic costs.:The question now is: How can we achieve this goal with policy tools that are based 

on observable factors of production, such as fertilizer use, tillage practices, and crop rotations? 

The results of the 20% N-loss constraint exercise give us the least-cost solution for achieving 

that goal, in terms of regional allocation of cropland, rotations, tillage practices, and fertilizer application rates. It is technically possible to achieve this solution, by '!prescribing" optimal agronomic practices for every enterprise recognized by the model, either through regulation or 

through other types of incentive. However, the transaction costs (developing site-specific plans 

and monitoring all producers' activities) would almost certainly outweigh the benefits. In addition, the results of a model such as USMP are not detailed enough for a real application of the 

results to the ground. Instead, policy must be designed around a few factors that are easy to observe and that are closely related to nitrogen loss. 

We reviewed the results of the N-loss restriction scenarios to try to identify those "drivers" that 

seemed to be most responsible for meeting the constraint. We determined that a combination of 

nitrogen fertilizer-use reductions and land retirement were most responsible. Fertilizer use appeared to be the most important factor in achieving a 20% N-loss reduction goal; tillage practices 
. . 

3 8 Economic Costs and Benefits of ReducingNutrient Loads to the dLif 

and rotations were not important factors in the USMP. model for achieving this goal. Therefore, we focused on reducing nitrogen fertilizer use. 

4.2.2 Restricting Fertilizer to Achieve the Nitrdgen-Loss Goal 

One way of achieving the N-loss goal is to restrict fertilizer use through a regulatory standard. 

We first ran the model with a basin-wide 20% restriction on fertilizer use. The reduction in fertilizer nitrogen use on crops in the 20% N-loss scenario was 24%, suggesting that a 20% reduction in N fertilizer may result in a sizable reduction in N loss. We let the model allocate the 

fertilizer-use reduction across the basin, rather than require each farmer to reduce fertilizer use by 

20%. This would minimize the costs to the sector by allowing farmers who can most afford to 

reduce fertilizer use to provide a greater share of the reduction. 

The results show what happens when nitrogen fertilizer use is the basis for a policy, rather than 

edge-of-fieldlbottom-of-root-zone nitrogen loss, which is the actual policy goal. Producers respond to the restriction by reducing fertilizer use and by shifting to crops and tillage practices 

that use less fertilizer, rather than taking those actions that necessarily reduce nitrogen loss. Under this scenario, production shifts toward nitrogen-fucing legume crops, such as soybeans, would 

be optimal behavior but would also tend to dampen the effectiveness of nitrogen-use restrictions. 

The economic consequences of reducing fertilizer use by 20% are less pronounced than the 20% 

N-loss restriction. Farmers can apparently meet the constraint fairly painlessly by reducing purchased fertilizer use and replacing it with nitrogen furation from legumes. As shown in Table 

4.8, crop acreage is reduced by only 2% in the basin and by only 1%for the nation as a whole. 

Increases in commodity prices are about half those seen in the 20% N-loss constraint scenario. 

In Table 4.9, net returns to the crop sector increase in the basin's three major farm production 

regions, and exports decrease for all crops but soybeans. Net social cost declines by 0.04%, or $347 

million (Table 4.7). 

TABLE 4.8. Comparisonof fertilizer-reduction strategies in the MississippiBasin (MB). 

'Price and acreage for changes for 500% nitrate tax the same. 
Chapter 4: Costs of Alternative Control Options 3 9-

TABLE 4.9. Comparison of economic impacts of fertilizer constraintsand taxes. 

Corn B., North. PI., Delta' 

Corn B., North. PI., ~elta' 

Percentage Change in Net Returns-Livestock 

Percentage Change in Export Volumes 

'Corn Belt, Northern Plains, and Delta farm production regions. 

Fertilizer use is serving as a prov for, but it is not perfectly correlated with, nitrogen loss. N-loss 

reductions are less than might have been expected. Farmers shift to rotations that include soybeans, which is a legume and produces its own nitrogen. Soybean acreage increases relative to 

other crops. Nitrogen can leak from these rotations, even though purchased fertilizer use is reduced. Reducing nitrogen fertilizer use by 20% only reduced nitrogen loss by 10.7% in the basin-about half the desired goal (Table 4.10). Soil erosion increases in both the basin and the 

U.S., indicating that more erosive practices are being employed on existing cropland, or that 

more cropland is being placed in production. 

TABLE 4.10. Impactsof fertilizer reduction on environmental indicators. 

'500% N fertilizer tax has identical results. 2 MB = Mississippi Basin; RUS = Rest of U.S. 

3For P loss and sediment, we did not estimate wetland filtering. Reductions are strictly edge-of-field from the Erosion 

Productivity Impact Calculator (EPIC) model. 
. . 

40 Economic Costs and Benefits of ReducingNutrient Loads to the ~ulf 

What level of fertilizer reduction will generate a 20% reduction in N loss? Results from the 

model indicate that a 45% reduction in fertilizer use will decrease N loss by 20%. Tables 4.8-4.10 

summarize the impacts of a mandated 45% basin-wide reduction in nitrogen fertilizer use. The 

impacts on acreage and prices are much more pronounced than Ithe 20% reduction in N-loss 

constraint, except for soybeans. Soybean acreage actually increases as soybeans are included in 

rotations to provide nitrogen to other crops. Export volumes are reduced for all crops, except soybeans. Net returns increase for the crop sector. Total social welfare declines by 0.3%, or $2.9 billion, which is more than for the cost-effective 20% N-loss scenario (Table 4.7). The difference 

in social costs can be viewed as the cost of not being able to base policy directly on nitrogen loss. 

The environmental impacts of the 45% fertilizer constraint are more pronounced than for the 

20% fertilizer constraint (Table 4.10). Nitrogen loss within the basin is reduced, but increases by 

7.6% in the rest of the U.S. Soil erosion increases both within and outside basin. Erosion increases in the basin despite the reduction in cropland in production, indicating that more erosive 

practices and rotations are being used than under the cost-effective solution. In contrast, soil 

erosion in the basin decreased in the least-cost 20% N-loss scenario. -

4.2.3 Taxing Fertilizer to Achieve the Nitrogen-Loss Goal 

An alternative to a regulation to reduce N fertilizer use is to place a tax on fertilizer. A tax raises 

the price of fertilizer relative to other inputs, spurring farmers to find ways of reducing its use. 

Some states already use fertilizer taxes to raise revenue, but the low tax levels coupled with an 

inelastic demand for fertilizer ensure only negligible impacts on use. 

The results from the USMP model indicate that a tax of 500% on nitrogen fertilizer would be 

required to achieve a 45% reduction in fertilizer use (and an approximate 20% reduction in N 

loss). The magnitude of the tax is supported by the finding that the demand for nitrogen fertilizer is inelastic (Vrooman and Larson 1991; Fernandez-Cornejo 1993). The impacts on crop 

production, crop prices, input use, and environmental indicators are identical to the 45% reduction standard (Tables 4.8-4.10). The only difference is in net returns to crop farmers and social 

welfare (Table 4.7). Because of the transfer of tax revenue to the government, net returns to 

producers are lower than for a fertilizer standard. Social welfare is reduced by 1.5%, or $14.9 billion (Table 4.7). Net returns in the Corn Belt, Northern Plains, and Delta farm production regions are reduced by 14.3%(Table 4.9). If the revenue from the tax is returned to producers as a 

reward to adopting nutrient management practices, the welfare impacts are the same for taxes as 

for the standard. 

4.3 WETLANDRESTORATION FOR DENlTRlFlCATlON 

An alternative to reducing N loss at the source in agricultural fields is to intercept N in streams 

using restored wetlands that will cause denitrification. Table 4.2 of the Topic 5 report discusses 

restoring wetlands as an option to trap and denitrify surface- and ground-water flows into the 

Gulf. The report calculated that 52,267-73,173 km2 (13-18 million acres) of additional wetlands 

in the Mississippi Basin would be required to reduce total N discharge to the Gulf by 50-70%. 

We used the screening process described above, along with the USMP model, to identify the 

constraints on agriculture-in terms of crop prices, acreage in production, and exports-caused 

by successively higher levels of wetland restoration. 

In this section, we estimate the direct costs and agricultural economic impacts of alternative programs to restore 4,047 km2,20,234 km2, 40,468 km2, and 72,844 km2 (1, 5, 10, and 18 million 
Chapter 4: Costs of Alternative Control Options 4 c' 

acres) of cropland formerly converted from wetlands. Total direct costs for permanent easements 

and restoration of wetlands selected at least cost range from $495 million to $32.4 billion (Table 

4.11). Restoration costs range from 75% to 24% as enrollment increases. Easement costs are 

$312-$3,377 per hectare of wetlands, while restoration costs remain about $1,000 per hectare. 

TABLE 4.1 I. Direct costs of wetland restoration, enrollment at least cost. 

Restoration Cost 

We used the USMP model to evaluate how the agricultural sector, both within the Mississippi 

Basin and nationally, responds to retiring cropland for wetland restorations. Cropland retired 

from production to restore wetlands is subtracted from the cropland used in the USMP model's 

baseline solution in each farm producing region. The amount of land retired is adjusted for differences in productivity between the average cropland acreage in the producing region and the 

productivity of the cropland identified as most likely to be restored to wetland in the screening 

step described above. In general, cropland likely to be restored to wetland is less productive than 

average cropland. Reducing cropland reduces production, which leads to increased prices. 

Higher prices, in turn, cause additional land to enter production, both within the basin and in 

the rest of the U.S. Acreage, price, and net return results presented below reflect the new equilibrium reached as a result of the original acreage reduction.' 

To match a 20% reduction in N losses from the USMP baseline level, 18 million acres of wetlands would have to be restored. Nitrogen losses in the USMP baseline are to the edge of the 

field and the bottom of the root zone, and are not directly comparable to the 1.5 million metric 

tons of N losses to the mouth of the basin reported in Table 4.2 of Topic 5. Therefore, the 20% 

loss is roughly equivalent to a 70% reduction in N losses to the mouth of the basin. Differences 

in the magnitude of impacts with fewer wetlands restored are also depicted and discussed. 

A 72,844-km2 (18-million-acre) increase in wetland restoration amounts to nearly 20 times 

more acreage than the existing Wetland Reserve Program, focused exclusively on the Mississippi 

Basin. This scenario produced relatively large impacts on the agricultural economy. The impacts 

on crop acreage and prices at the national level are much greater than the range seen over the 

period 1987-96, for all crops (Tables 4.12 and 4.13). Crop acreages generally decline by 3-20% in 

the basin, and U.S. crop prices increase by 2-18%. There is a 1% increase in production outside 

the basin overall in response to higher prices, but major crop acreage increases by 1-4%, while 

silage and hay acreage decreases. Higher prices reduce exports for most crops, ranging from 2% to 

12% (Table 4.14). 
42 Economic Costs and Benefitsof ReducingNutrient Loadsto the Gulf 

TABLE 4.12. Percentage change in crop acreage, enrollment at least cost. 

Total -0.2 0.1 -0.2 -1.3 0.1 -0.9 -2.6 0.5 -1.9 -6.0 1.0 -3.8 

'MB = Mississippi Basin; RUS = Rest of U.S. 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA. 

TABLE 4.13. Percentage change in crop prices, enrollment at least cost.' 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA. 
Chapter 4: Costs of Alternative Control Options 4 3 

TABLE 4.14. Percentage change in crop exports, enrollment at least cost.' 

'Includes commercial exports and exports under export enhancement programs. 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA. 

Net farm income increases overall in the Corn Belt, Northern Plains, and Delta (representing 

the entire basin), as well as for the U.S. (Table 4.15). Increases in crop prices more than make up 

for the reduction in output. Increases in net returns are not felt equally by crop and livestock 

sectors. The livestock sector purchases grain for feed, so the increase in prices hurts livestock producers inside the basin as well as in the U.S. The increase in crop prices also hurts consumers by 

reducing consumer surplus. In total, net national social welfare (producer plus consumer surplus, 

plus wetland restoration costs) is reduced by 1.5%, or $15.5 billion (Table 4.7). 

TABLE 4.15. Percentage change in farm net cash returns and net social benefit, enrollment 

at least cost.' 

Total Farm Net 

Cash Return-U.S. 

Total Net Social 

'Corn Belt, Northern Plains, Delta farm production regions. 

'Change in farm net cash income and consumer prices for food and fiber products. 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA.. 
44 Economic Costs and Benefits of Reducina Nutrient Loads to the ~ulf . 

The impact of the 72,884-km2 wetland restoration on environmental indicators shows the importance of considering all the impacts of a policy (Table 4.16). Nitrogen losses avoided on the 

restored wetlands, net of increases from new acres brought into production, within the basin are 

reduced by more than 173,000 metric tons. Additionally, and moke important, is the estimated 

728,424-1,092,636 metric tons in annual denitrification of surface and ground waters flowing 

through the restored wetlands. The total reduction from both sources is 19.9-27.6% of USMP 

baseline N losses. These two classes of N-loss reductions technically cannot be directly compared. Reductions in nitrogen associated with sediment, leached, and dissolved in runoff are only 

estimated at the edge of the field and bottom of the root zone and are not adjusted for fate and 

transport to the stream system. Estimates of denitrification in wetlands are from the nitrogen 

delivered to streams. However, the sum of the N-loss reductions can be considered as a relative 

measure of total reductions achieved by each wetland restoration level because the fate and transport adjustments needed for each restoration level are likely of the same order of magnitude. 

Adjustments within the basin also result in decreases in phosphorus losses and soil erosion. Each 

of these reductions also generates water quality benefits. However, the increases in crop prices 

result both in more intensive production on existing acreage outside the basin, and in an increase 

in acreage in production. Without any environmental constraints, soil erosion increases in the 

rest of the US., to the probable detriment of water quality. 

As less cropland acreage is restored to wetlands, economic impacts on the agricultural sector decrease. With restoration of 4,047-40,468 km2 (1-10 million acres) of wetlands, total crop acreage in the basin decreases from 0.2% to 2.6% (Table 4.12). Offsetting increases in the rest of the 

U.S. are insufficient to make up the losses, resulting in a 0.2-1.9% decrease in U.S. crop acreage. 

TABLE 4.16. Change in nutrient and sediment losses, enrollment at least cost. 

Metric Tons of N ~ra~~in~' in the Mississippi Basin 

Metric Tons Lost to Field Boundary' in the Rest of the U.S. 

Metric Tons Lost to Field Boundary' in the Entire U.S. 

'Estimated losses to edge of field or bottom of the root zone based on EPIC simulations. 

'Based on an estimated 10-l5g-Nlm2Iyr (Table 4.2 of Mitsch et al. 1999). 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA. 
Chapter 4: Costs of Alternative Control Options 4 s 

kce, hay, silage, and soybeans are the major crops affected. Resulting crop price increases range 

from negligible to 7%, with the largest increases in oats, corn, and soybeans (Table 4.13). Export 

volumes decline by as much as 7% for sorghum, oats, and rice (Table 4.14). Farm net cash income for the U.S. increases by as much as 2.4%, with up to 4% increases for crops and decreases 

for livestock net income (Table 4.15). Higher consumer prices offset farm net cash income 

gains, resulting in net social benefits decreasing by up to 0.74%. Nitrogen, phosphorus, and 

sediment losses from reduced crop production and wetland trapping in the basin are proportionally reduced as fewer wetlands are restored, ranging from 1%to 15% of baseline levels. However, 

offsetting losses in the rest of the U.S. also increase (Table 4.16). Both 4,047 km2 and 20,234 

km2 (1-5 million acre) restoration levels are probably feasible without unduly constraining the 

agricultural economy, but levels beyond this have significant impacts. 

4.3.1 Targeting Wetland Enrollment 

An alternative wetland targeting strategy is to target restoration on the basis of regional nitrogen 

loads, rather than on the cost of land retirement. An extra reduction in nitrogen filtering could 

make such a targeting strategy more favorable on a per-unit N-reduction cost basis. Based on the 

previous anal sis of the agricultural impacts from different levels of wetland restoration, we chose

a 20,234-km P (5-million-acre) level for further analysis. In addition, we examined the mechanism for achieving such a level of restoration, direct and indirect costs, and nitrogen reductions. 

A program similar to the current Wetland Reserve Program (WRP), operated by USDA's 

Natural Resources Conservation Service (NRCS), is assumed to be the mechanism by which 

these lands are restored as wetlands. Landowners who choose to participate in the WRP sell a 

conservation easement to USDA to restore and protect wetlands. The landowner voluntarily 

limits future use of the land, yet retains private ownership. The landowner and NRCS develop a 

plan for restoring and maintaining the wetland. Permanent easements are conservation easements in perpeGity. In the current program, easement payments are the lesser oE the agricultural value of the land, an established payment cap, or an amount offered by the landowner. In 

addition to paying for the easement, USDA pays 100% of the costs of restoring the wetland. 

The current WRP has an enrollment cap of 3,946 km2 (975,000 acres), and about 2,100 km2 

(533,000 acres) have been enrolled (USDA 1997). 

In the absence of explicit criteria for enrolling restorable cropland to maximize nitrogen reduction, we assumed two scenarios: (1) the acreage enrolled is proportional to the total nitrogen 

yield by hydrologic unit, and (2) the acreage is enrolled at least cost from hydrologic units that 

yield some nitrogen. The geographic pattern of enrolling 5 million acres under the two scenarios 

is shown in Figure 4.6. Enrolling proportional to nitrogen yield produces a more uniform dlstribution than enrolling at least cost, which is concentrated in watersheds with cropland on wetland soils, with poor drainage, or low productivity. The more concentrated enrollment in the 

least-cost pattern raises the possibility of diminishing marginal nitrogen reduction, as more and 

more land is enrolled in the same watersheds. On the other hand, by widely distributing enrollment, the proportional enrollment pattern may be more likely to maximize the amount of drainage water filtered by the restored wetlands. 
46 Economic Costs and Benefitsof Reducing Nutrient Loads to the dulf . . 

Wetland Restoration Alternatives: 

Five Million Acres 

FIGURE 4.6. Wetland restoration alternatives. (NOTE: Some wetland sites in the lower Great 

Lakes were inadvertently brought into the solution. For the I million acres of wetland, this 

probably slightly lowered the cost of this solution.) 
Chapter 4: Costs of Alternative Control Options 4 TTotal direct costs are significantly higher than least cost when restored land is drawn in proportion to nitrogen yields. Nitrogen yields tend to be high in areas where cropland is more productive, leading to higher opportunity costs. Easement and restoration costs under the proportional 

scenario rise from $1.3 billion to $39.5 billion as wetland acreage enrolled increases. Costs per 

wetland hectare restored increase from $3,153 to $5,419. Easement costs per hectare double as 

land enrolled under the proportional scenario increases, while restoration costs remain nearly 

constant at about $1,000 per hectare. 

A comparison of the performance of a 20,234-km2 (5-million-acre) wetland restoration level 

enrolled proportional to nitrogen yields and at least cost is detailed in Table 4.17. Indirect costs, 

in terms of changes in farm net cash income and consumer surplus due to changes in crop prices, 

are higher for proportional enrollment. Field N reductions are about 25% higher. It is not 

known how much different nitrogen trapping and denitrification in wetlands enrolled proportional to N loadings would be from least-cost enrollment. Assuming equal levels (at 10 g per 

m2),least-cost enrollment reduces USMP baseline N loss by 5.3%, compared with 5.7% for proportional enrollment. Direct costs per kg of N reduction are $3.02 for proportional enrollment 

and $1.92 for least-cost enrollment. If the sum of direct and indirect costs isconsidered, proportional enrollment costs $17.50 per kg reduced per year, compared with $14.32 per kg for leastcost enrollment. Based on this analysis, further discussions of wetland restoration will be based 

on the least-cost targeting strategy. 

TABLE 4.17. Performanceof a 20,234-km2(5-million-acre) wetland restoration program. 

Annual Direct Costs 

Administrative' 

P Reductions 

'Three percent of easement and restoration costs (Misso, personal communication). 

21ncludes the opportunity cost of land idled to restore wetlands, compensated by easement cost paid to landowners. 

3Field losses and trapping are not strictly additive. 

4Estimated losses to the edge of the field or the bottom of the root zone are based on EPIC simulations. 

'Based on an estimated 10-15 g-Nlm21yr (Table 4.2 of Mitsch et al. 1999). 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, USDA. 
48 Economic Costs and Benefitsof ReducingNutrient Loads to the Gulf - -

4.4 RIPARIAN BUFFERS FOR NITROGEN FILTERING 

Another strategy to intercept N runoff from agricultural fields aqd other nonpoint sources before it reaches streams is to convert land bordering stream edges into vegetated riparian buffers 

that trap nutrients and sediment, and to promote denitrification in the root zone of the buffer 

vegetation. Section 3.2.4 of Topic 5 discusses the construction and efficiency of such buffers. 

Because the nitrogen removal efficiencyof riparian buffers is about one-fourth that of wetlands, 

the Topic 5 team calculated that 196,000-274,400 krn2 (48-68 million acres) of riparian buffers 

in the Mississippi Basin would be needed to reduce basin nitrogen loads by 50-70% (Table 4.3). 

At an average width of 30 meters (100 feet) on each side of a stream, or 24 acres per linear mile, 

2-3 milhon miles of riparian buffers would translate into some 24-36 million acres, larger than 

the entire 7-million-acre goal of the USDA Stream Buffer Initiative (NRCS web site). 

Based on the screening process for restorable wetland sites described above, along with the 

USMP model, we identified the constraints on agriculture-in terms of-crop prices, acreage in 

production, and exports-caused by a comparable level of riparian buffer restoration. In this section, we estimate the direct costs and agricultural economic impacts of a program to restore 

109,266 krn2 (27 million acres) of riparian buffers, involving 18 million acres of cropland, enrolled in areas proportional to nitrogen yields. This level of riparian buffer restoration is expected 

to reduce USMP baseline N losses by 15% through a combination of field reductions from land 

taken out of crop production and denitrification of intercepted runoff and base flow by the 

buffer strip vegetation. This corresponds to about 44% of N losses to the mouth of the basin, as 

estimated in Table 4.3 of Topic 5. As the Topic 5 authors stress, the location and nature of the 

riparian buffers needed would have to be chosen with a precision that neither team could model. 

Specifically, if the location within the producing regions of the USMP model of the riparian 

buffer areas needed differs substantially from that of the wetland restoration areas identified in 

the screening process, the overall economic impacts could differ from what is estimated here. 

Total direct costs for permanent easements and restoration of riparian buffers are estimated at 

$46.3 billion (Table 4.18). Easement costs are estimated at $4,348 per hectare of cropland. 

However, because cropping does not generally extend directly to the water's edge, we assumed 

that one-third of the buffer area would not be cropped and would have an opportunity cost of 

zero, implying zero easement cost. Restoration costs assume that 40% of the buffer areas, mostly 

in the Northern Plains, will be planted to grass at the average cost incurred to establish such 

buffers in the Conservation Reserve Program in 1996, while the remaining 60%, mostly in the 

Corn Belt and Delta regions, will be planted to trees. The total buffer area of the will be planted, 

despite the assumption that only two-thirds of it is cropland that will be paid compensation. 

We used the USMP model to evaluate how the agricultural sector, both within the Mississippi 

Basin and nationally, responds to retiring cropland for riparian buffer restorations. Cropland retired from production to restore buffer strips is subtracted from the cropland used in the USMP 

model's baseline solution in each producing region. The amount of land retired is adjusted for 

differences in productivity between the average cropland acreage in the producing region and the 

productivity of the cropland identified as most likely to be restored to buffers, as in the screening 

step described above. In general, cropland likely to be restored to buffers is less productive than 

average cropland because of drainage problems. Reducing cropland reduces production, which 

leads to higher prices. Higher prices, in turn, cause additional land to enter production, both 

within the basin and in the rest of the U.S. Acreage, price, and net return results presented below reflect the new equilibrium reached as a result of the original acreage reduction. 
Chapter 4: Costs of Alternative Control Options 49 -‘ 

TABLE 4.1 8. Direct costs of wetland restoration, enrollment at least cost. 

Program Costs -millions of $ 

Easement Cost 

Restoration Cost2 

Unit Costs-$/hectare ($lacre) 5,354 (2,167) 

Easement Cost 

Restoration Cost 

'Assumes that one-third of the buffer is stream margin that is not cropped and thus has zero opportunity cost. 

'Assumes that 40% of buffers will be planted to grass at an average cost of $1 70 per acre, based on 1996 CRP filter 

strip costs for selected states, and 60% will be planted to trees at an average cost of $565 per acre. 

A 109,622-km2 (27-milhon-acre) increase in riparian buffer restoration amounts to buffering 1.1 

million miles of streams, more than the goal of the USDA Conservation Buffer Initiative, focused entirely on the Mississippi Basin. This scenario produced rather severe impacts on the agricultural economy. The impacts on national crop acreage and prices are greater than those seen 

during 1987-96 for all crops (Table 4.19). Crop acreages generally decline by 2-20% in the basin 

and 1-8% in the U.S. Crop prices increase by 2-21%. Production increases substantially outside 

the basin in response to higher prices, which in turn reduce exports significantly for most crops. 

Net returns to crop producers in the Corn Belt, Northern Plains, and Delta (representing the 

basin) increase by 5.8% for these regions, as well as 4.9% for the U.S. (Table 4.19). Increases in 

crop prices more than make up for the reduction in output, except in the Delta region. Increases 

in net returns are not felt equally by the crop and livestock sectors. Higher prices for feed grain 

hurt livestock producers both inside and outside the basin. Higher crop prices also hurt consumers by reducing the consumer surplus. In total, net national social welfare (producer plus consumer surplus) is reduced by 1.8%, or $18 bihon. 

The impact of the 109,266-km2 riparian buffer restoration on environmental indicators shows 

the importance of considering all the impacts of a policy (Tables 4.19 and 4.20). Nitrogen losses 

avoided on the restored riparian buffers, net of increases from new acres brought into production, within the basin are reduced by almost 255,000 metric tons, as modeled. Additionally, and 

more important, is the estimated 437,000 metric tons in annual denitrification of surface and 

ground waters flowing over and through the restored riparian buffers. This is 15% of USMP 

baseline N losses to the edge of the field and the bottom of the root zone, and 44% of N losses 

to the mouth of the basin, as estimated in Table 4.3 of the Topic 5 report. 

These two classes of nitrogen-loss reductions technically cannot be directly compared. Reductions in nitrogen associated with sediment, leached, and dissolved in runoff are only estimated at 

the edge of the field and bottom of the root zone and are not adjusted for fate and transport to 

the stream system. Estimates of filtering and denitrification in riparian buffer areas are from the 

nitrogen intercepted on the way to streams. However, the sum of the nitrogen-loss reductions 

can be considered as a relative measure of total reductions achieved by different approaches and 

restoration levels because the fate and transport adjustments needed for each are likely of the 

same order of magnitude. 
50 Economic Costs and Benefitsof ReducingNutrient Loads to the Glilf 

TABLE 4.1 9. Change in crop acreage, prices, returns, and nutrient losses for a 1 09,266-km2 

(27-million-acre) riparian buffer restoration program enrolled proportional to nitrogenyield. 

Percent Change in Returns' 

Crop Enterprises 

Livestock Enterprises 

Total Farm Net Cash Return 

Percent Change in Nutrient and 

Sediment Losses to Field Boundaries 

'Returns for the Mississippi Basin are for the Corn Belt, Northern Plains, and Delta regions because USMP return 

information cannot be disaggregated lower than USDA farm production regions. 

Based on 42 N/m2/year from Mitsch et al. 1999. 

Adjustments within the basin also result in decreases in phosphorus losses and soil erosion. Each 

of these reductions also generates water quality benefits. However, the increases in crop prices 

result in more intensive production on existing acreage outside the basin, and in an increase in 

acreage in production. Without any environmental constraints, soil erosion increases in the rest 

of the U.S., to the probable detriment of water quality. The important thing to note is that, under the assumptions about N-loss reduction per m2 of buffer and the cost of retiring land from 

production and restoring vegetation, this massive riparian buffer restoration effort is not costeffective at reducing N losses relative to fertilizer reductions or wetland restoration (Table 4.7). 
Cha~ter4: Costs of Alternative Control O~tions 5 I--

TABLE 4.20. Performance of a 1 09,266-kmz ((27-million-acre) 

riparian buffer restoration program. 

Perfamance tndicsltars Enrolted Propoeianaltp N Yield 

Total 

(millions of $) 

$/Hectare1 

($/Acre) 

Annual Direct Costs 2,157 197 (80) 

Easement 

Restoration 

1,645 

5 12 

151 (61) 

47 (19) 

Annual Indirect Costs 

Farm Cash income2 

Consumer Surplus 

Net Social Benefit 

35,004 

-3,634 

2 1,136 

17,502 

3,203 (1,296) 

-333 (-135) 

1,934 (783) 

1,602 (648) 

Metric Tons Kg 

N Reductions2 

Field ~osses~ 

~ra~~in~~ 

69 1,983 

254,9 18 

437,064 

63.3 -

23.3 

40.0 

P Reductions 907 0.1 

Sediment Reduction 5 1 ,O 13,7 19 4,668.8 

'Per acre of riparian buffer. 

'~ieldlosses and trapping not strictly additive. 

3Estimated losses to the edge of the field or the bottom of the root zone are 

based on EPIC simulations. 

4Based on 4 g N/m2/year from Mitsch et al. 1999. 

Source: U.S. Mathematical Programming Model analysis, Economic Research 

Service, USDA. 

4.5 MIXED POLICY 

The apparent economic sensitivityof agriculture in the Mississippi Basin to nitrogen-use restrictions suggests that meaninghl nitrogen-loss targets will be difficult to accomplish solely by restricting nutrient input. One alternative policy is to combine moderate nitrogen-use restrictions 

with technologies that slow or prevent the loss of nitrogen from the fields. Restored and constructed wetlands appear to be a promising "natural" technology that can sequester nitrogen and 

reduce the fraction that is eventually discharged into the Gulf of Mexico. One of the conclusions 

from the literature is that a mixed policy that uses several different tools may be the most costeffective approach when there is a great deal of variation in physical and economic conditions 

(Shortle and Abler 1994). 

We explored how a policy combining wetland creation and fertilizer reduction compared with a 

wetland- or fertilizer-only policy. We reviewed these results to identify which combination of 

fertilizer reduction and wetland creation might achieve the 20% N-loss goal at least cost. We 

selected the proportional 5-million-acre wetland restoration with a 20% reduction in N fertilizer 

use. When running the USMP model, we first removed the 5 million acres from the cropland 

base (replicating the proportional 5-million-acre wetland scenario described above), and then 

applied the basin-wide 20% fertilizer reduction constraint to the remaining cropland. The results 

are summarized in Tables 4.8-4.10. The sum of the N reductions for the indvidual policies is 

18.8%, assuming high wetland N filtering, which is slightly less than the 20% N reduction goal. 
52 Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf -

Price and acreage impacts are substantially lower than for the fertilizer-based policies that achieve 

a similar goal. Social welfare is reduced by 0.5%, or about $4.8 billion, which is substantially less 

than the wetland-only policy (Table 4.7). Net returns to crop producers increase in both the basin (represented by the Corn Belt, Northern Plains, and Delta) and the U.S., and export volumes decrease for all crops. Nitrogen loss increases slightly in the rest of the U.S., and soil 

erosion increases slightly in the basin and in the rest of the U.S. 

4.6 SUMMARY 

Figure 4.6 summarizes the results of the fertilizer use and wetland restoration scenarios. Results 

are compared on the basis of cost per unit of N-loss reduction (ignoring benefits for the time 

being). Costs are defined as changes in consumer-producer surplus for the fertilizer strategies, 

and consumer-producer surplus plus wetland easement and restoration costs for the wetland and 

buffer strategies. Note the parametric N-loss curve, which represents the least cost for achieving 

N-loss reductions. 

The strategy that comes closest to the least-cost solution is the 45% fertilizer restriction. The 

20% fertilizer restriction costs less, but does not meet the policy goal. The wetland and buffer 

strategies are all much more costly, due mostly to the opportunity cost of retiring cropland and 

restoration costs. The combined policy does somewhat better, but is still more expensive than the 

fertilizer strategy because of the land retirement opportunity costs and wetland restoration costs. 

4.7 POINT-SOURCE REDUCTION THROUGHNONPOINTTRADING 

Agriculture is only one source of nitrogen in the basin, albeit the largest. An alternative to addressing agricultural sources is to address point sources, which are much easier to observe and to 

control. For this analysis, we assume a policy of requiring all point sources discharging N in the 

Mississippi Basin to install advanced nutrient removal technology. Such a policy would be the 

easiest to implement given current water quality laws, where only point sources of pollution are 

controlled through command-and-control policies. We impose what we think to be a fairly 

stringent requirement that all treatment plants achieve a discharge level of 3 mg/l. 

An alternative to reducing only point sources is to reduce nonpoint sources, either in combination with point sources or alone. If the cost of reducing a unit of N is less for nonpoint sources, 

then efficiency considerations would suggest that reductions are targeted to these sectors first. A 

way to do this under current water quality laws is through a trading system. Simply, trading allows point sources to "purchase" required reductions from cheaper sources as a means of meeting 

their discharge requirements. 

For example, suppose a point source is required to reduce its N loadings by SO%, and that this 

costs the firm $150 per pound of N reduced. Also suppose that improved nutrient management 

practices on cropland in the same basin could produce the same reduction in N loads for only 

$20 per pound. Efficiency is gained if the point source can pay the nonpoint source to install 

nutrient management practices, rather than installing the more expensive treatment technology. 

An equivalent reduction in N discharge can be achieved at a lower cost to society. Such a system 

is being used in some basins in North Carolina (EPA 1992). This can be considered a privately 

funded cost-share program for nutrient management. For the purposes of this analysis, we assume there is no complementary, publicly supported program or policy for reducing agricultural 

nonpoint-source pollution. 
Chapter 4: Costs of Alternative Control Options 5 3-

Information on the costs of different methods for modifying existing mdnicipal sewerage treatment plants so as to further reduce N was adapted from cost equations developed originally by 

Hazen and Sawyer and Smith Associates (1988), as modified and reported in Camacho (1992) 

for the Chesapeake Bay Program. The retrofit planning cost curves,provide estimates for four 

types of secondary N treatment to accomplish biological N removal: extended aeration, activated 

sludge, activated sludge with nitrification, and activated sludge with fured film. Curves were estimated for two levels of total nitrogen (TN) removal (8.0 mg/l and 3.0 mg/l seasonal), for two 

levels of plant discharge size (0.5-5.0 mgd and 5.0-30.0 mgd), and for areas with and without 

bans on phosphate discharges. Equations for annualized capital and operation and maintenance 

costs, in 1990 constant dollars, were estimated as nonlinear equations of the form: 

Capital = a (Flow)b 

and 

O&M = c (Flow)d 

where 

Capital = capital costs 

O&M = o~erationand maintenance costs -

1 

Flow = design flow in millions of gallons per day (mgd) 

a,b,c,d = regression coefficients and exponents 

These cost curves generally drop rapidly from negligible discharges to 5 mgd, then remain relatively flat but decreasing over the 5-30 mgd range (see Figure 4.7). For this report, we assume 

that all municipal sewage treatment plants must install activated sludge with nitrification, so that 

an N-discharge target of 3 mg/l is met. This particular technology offered the best combination 

of performance and cost over the range of treatment level required in the basin. 

Data on nitrogen discharged from treatment plants and total discharge were obtained from each 

county in the basin (Gianessi and Peslun 1984). The cost equations were evaluated for a hypothetical plant, with flow and N discharge equal to the total municipal and industrial discharge in 

each county in the basin. The total capital and O&M cost of the retrofit was then divided by the 

difference in N discharge between the base condition and the 3.0 mg/l level, to calculate an annual cost per pound of N reduction, which ranged from $1.79 to $22,976.81. 

The supply of N credits from agriculture was estimated for each region within the USMP agricultural model. The model is used to estimate price and quantity effects on the agricultural sector 

in response to the creation of a market for N reductions. 
54 Economic Costs and Benefitsof Reducine Nutrient Loads to the Gulf 

20 40 60 

Percentage reduction in N-loss 

Least cost wetlands restoration 20% & 45% Nfertilizer restriction 

Least costfield N loss redu 109. 266 km ' reparian buffer 

Combined: 20,234 km' wetlands + 20 % N restriction 

Change in netfarm cash income and consumer surplus 

Assumes 15 g/m' wetland and 4 g/m2 bufler dentrijication. 

FIGURE 4.7. Social cost per unit of N reduction, without intra-basin benefits, by control 

method. 

To represent the demand for nonpoint reductions in N on the part of point sources within the 

USMP model, meta-cost functions were estimated for each model subregion from the estimated 

county wastewater treatment costs (Figure 4.8). These meta-cost functions can be viewed as 

demand functions for trading point- and nonpoint-source N reductions (Figure 4.9). That is, 

the curve shows the cost point sources in the subregion need to incur in order to acheve a given 

cumulative reduction in N discharge. Point sources should be indifferent to paying that cost for 

N reduction by retrofitting or by compensating farmers for nonpoint-source reductions in N of 

equivalent size. Average N effluent concentrations, and average treatment costs weighted by the 

relative N discharge in each county, are shown for each subregion in Table 4.21. 

Given the demand for nitrogen reductions, the agricultural sector in each region can supply Nreduction credits by changing fertilizer application rates, switching production practices, or 

growing different crops. The amount of credits sold within a region depends on the demand for 

N credits and the costs of reducing N losses in agriculture. Agriculture will supply N credits up to 

the point where the marginal cost of producing the next credit is greater than the marginal cost 

of treatment, or until the total point-source demand is met. We used the USMP model to determine the amount of N reduction purchased by point sources in each region. 
Chapter 4: Costs of Alternative Control Options 5g 

10 20 3 0 40 

Designfrow (mgd) 

Extended Aeration Activated Studies 

Activated Sludge with Nitrification 

I Reduction from 50 to 3 ma/l concentration 1 

FIGURE 4.8. Planning-level biological nitrogen removal retrofit cost curves. 

The price of the marginal sale of N credits in each region is reported in .Table 4.21, as well as the 

amount of N credits purchased by the point sources. The results are reported for each of the 21 

USMP regions that are in the Gulf of Mexico drainage area. Given the opportunity to purchase 

N-reduction. credits from agriculture within their respective regions, point sources would pay agriculture to reduce N loads by 407.93 million pounds, or 47% of total point-source reductions 

obtainable by the required technology. In 12 regions, point sources could meet their total responsibility by buying credits. In the other nine, agriculture could not meet the entire demand 

because point sources could meet at least part of their obligation more cheaply by instahng the 

advanced treatment technology. However, credits were purchased in all regions. Point sources 

realized cost savings of about $14 billion by not having to install advanced treatment and instead 

purchasing N reductions from agriculture. 

The abihty of farmers in the Mississippi Basin to sell N-reduction credits to point sources has 

important implications for agriculture in the basin and the rest of the country. Table 4.22 summarizes the changes in crop prices, acres planted, and farm income in the Mississippi drainage 

area and rest of the U.S. With the exception of hay and silage, the prices of most commodities 

increase. Within the basin corn, soybean, wheat, and rice are shifted into other crops, primarily 

oats, silage, and hay. Elsewhere in the U.S., the acreage planted to all crops, except soybeans and 

hay, increases. Total acreage planted increases in the basin and decreases in the rest of the U.S. 
56 Economic Costs and Benefits of ReducingNutrient Loads to the ~ulf . . 

TABLE 4.2 1. Summaryof point-source control costs, total demand for credits, amounts purchased, and the cost of a marginal credit. 

Note: The locations of the regions appear in Figure 4. 

TABLE 4.22. Changes in crop prices and acreage planted in 

trading scenario, by Mississippi drainage and rest of U.S. 
Chapter 4: Costs of Alternative Control Options 57 

Million pounds per year 

CumuktiveN reduction 

Est. Retrofit cost Mefafunction 

I Activated Sludge w/Nitr$cation 3 ng/l goal I 

FIGURE 4.9. Demand for N reduction for point-sourcetrading. 

This increase may be an indication of a moral hazard problem. The newly created market for Nloss reductions encourages the expansion of cropland so that farmers have more N-reduction 

credits to sell. Total acreage planted in the U.S. increases by about 0.8%, and net cash returns for 

crop production in the entire U.S. increase by about 1%($465 million). 

The changes in crop production have implications for environmental quahty (Table 4.23). In 

the basin, N losses are reduced, as might be expected. However, these N-loss reductions are nowhere near the 20% goal stated previously. This demonstrates point sources' relatively small contribution to the overall nitrogen loading problem. In the rest of the country, N losses increase as 

the rise in the prices of some major crops spurs growth in production and fertilizer use. Changes 

in production practices in the basin result in a small increase in soil erosion, primarily from an 

expansion of moldboard plowing. The increase in erosion could have negative consequences for 

water quahty in the basin. Changes in crops and management practices also result in greater 

phosphorus losses in the basin, and virtually no change in phosphorus losses outside the basin. 

The consequences of changes in erosion and phosphorus losses would need to be considered in a 

complete benefit-cost assessment of a trading program. 
58 Economic Costs and Benefitsof Reducing Nutrient Loadsto the ~ulf . 

TABLE 4.23. Changes in physical environmental indicators for 

trading scenario, by Mississippi drainage and rest of U.S. 
CHAPTER5 

Environmental Benefits 

As with costs, the range of potential benefits can be extensive. Costs are often amenable to being 

calculated on an accounting or engineering basis, and a model like USMP makes this process 

appear even more precise than it is likely to be in fact. Benefits, especially when related to environmental issues, are often less defined because the public values things that have not been traditionally thought of in terms of dollars and cents. -

In this case we tried to look at a broad range of benefits corresponding to our broad range of 

costs. Some benefits should be amenable to quantification in economic terms, like benefits to 

commercial fisheries in the Gulf of Mexico. Others, like the restoration of ecosystem health in 

the Gulf, are important, but we do not feel comfortable placing a price tag on them. While the 

restoration of these ecological communities may be nearly impossible to value in a direct monetary sense, they can be reasonably expected to provide some basis of support for the species that 

comprise the Gulfs commercial and recreational fishing industries. 

Improved water quality within the Mississippi Basin certainly has some economic value, as evidenced by studies from specificwatersheds or relating to specific water uses. While we reference 

examples of these studies, we are unable to aggregate and extend them to estimate the basinwide benefits of improved water quality. We can give estimates for reduced erosion damage for 

the basin, which can be counted as a benefit when farm practices adopted to reduce nitrogen 

losses also reduce erosion. Finally, to some extent because we have national programs to restore 

wetlands, there is a body of literature estimating benefits from wetlands, and we can estimate the 

within-basin benefits from creating wetlands to reduce nitrogen flows to the Gulf. 

Because a number of marine species in the northern Gulf of Mexico are targets of commercial 

and recreational fishing, they have direct economic value that can, in principle, be estimated. 

Benefits would be expected to arise from reduced hypoxia if, under current conditions, the revenue and/or cost structures of the commercial industries are being negatively affected by the presence of hypoxia. Such negative effects may have occurred due to decreases in the stock of 

commercially viable species, shifis in the location of fishing grounds associated with those species, or changes in the quality of the species being harvested. These changes, if they occurred, 

would have led to changes in the target species being harvested, perhaps to species less preferred 

by consumers and, thus, bringing a lower dockside price. Shifts in the fishing grounds could 

have led to increased effort required for a unit harvest, although it is also possible that effort 

could be reduced if hypoxia crowded species into nearshore waters. 
60 Economic Costs and Benefits of Reducing Nutrient Loadsto the Gulf 

Estimating these benefits in the commercial fishery may be particularly straightforward, as the 

information needed to assess hypoxic effects is generally detailed and systematically collected for 

commercially important species. While the economic importance of the recreational fishery both 

in the Gulf of Mexico and in the freshwater riverine systems of the, Mississippi Basin cannot be 

overstated, little systematic data have been collected that would allow the identification of the 

economic effects of hypoxia. This lack of information is especially acute with respect to the 

charter and trip-support industries. 

The Topic 2 report, Ecological and Economic Consequences of Hypoxia, estimated the benefits 

resulting from reduced hypoxia in the Gulf of Mexico. Table 5.1 briefly summarizes their conclusions (Diaz. and Solow 1999). The implicit baseline used in the Topic 2 analysis was current 

conditions in the ecological communities and the commercial fishery. Historical time-series and 

geographical data were examined to discern the effects of hypoxia on the Gulf of Mexico ecosystem and the fishing industry over the last 30 years. Because of conceptual and measurement 

problems, we could not calculate reliable estimates of the noncommercial use and nonuse values 

of restored ecological communities. Thus, the following discussion focuses on the other potential benefits of reduced hypoxia in the Gulf-namely, the impacts on the commercial and recreational fisheries. 

TABLE 5.1. Summary of estimated benefits associated with hypoxia reduction in the Gulf of 

Mexico, as presentedin the Topic 2 report. 

Potential Benefitsof Hypoxia Reduction Conclusionsfrom Topic 2 Report' 

Restoration of ecological communities in 

the Gulf of Mexico. 

Data not available to estimate benefits. 

Increased commercial harvesting of white 

and brown shrimp. 

Given available data, no estimable benefits 

from hypoxia reduction. 

Increased commercial harvesting of Gulf 

menhaden. 

Given available data, no estimable benefits 

from hypoxia reduction. 

Increased commercial harvesting of red 

snapper. 

Given available data, no estimable benefits 

from hypoxia reduction. 

Increased recreational harvesting. Data not available to estimate benefits. 

Source: Diaz and Solow 1999. 

The Topic 2 analysis focused primarily on the two main shrimp species in the northern Gulf: 

brown shrimp and white shrimp. The reasons for concentrating the search for benefits on these 

two species were twofold. First, these species are commercially important. As a result, the data 

for these fisheries are relatively good, particularly in terms of their geographic resolution and potential overlap with areas of hypoxia. Second, as benthic species, their potential for experiencing 

hypoxic effects would likely be relatively high, although a search of the literature identified only 

one quantitative assessment of the effects of hypoxia on a commercial shrimp fishery, and those 

effects were considered insignificant (Zimmerman et al. 1996). 

The Topic 2 assessment of the economic benefits associated with hypoxia reduction suggested 

that, given the available data, no effect in the shrimp fisheries data could be attributed with high 

confidence to hypoxia. It was noted that the failure to identify hypoxic effects in the fisheries 

data was consistent with the results of the broader Topic 2 ecological study. Given that no his-
Chapter 5: Environmental Benefits 6 t 

torical effect could be identified, the implication is that efforts to reduce hypoxia in the Gulf of 

Mexico will not generate benefits for the white and brown shrimp fisheries. 

Additional analyses were performed for two other species-Gulf menhaden and red snapper-to 

address specific concerns about the affects of hypoxia and potential hypoxia reductions on the 

spawning and grow-out waters of these species. No statistically reliable impacts that they could 

attribute to hypoxia were identified in the historical data. The inability to associate hypoxia with 

significant changes in the historical data for the important northern Gulf of Mexico fisheries led 

the Topic 2 report to conclude that there was no need to assess the direct economic benefits of 

reducing hypoxia in the Gulf of Mexico. Given the lack of available data, no attempts were made 

to estimate the benefits that might accrue to the recreational fishing industry, although there is 

no reason to assume that the results would be significantly different from those generated for the 

commercial industry. 

It is worth emphasizing, as did the Topic 2 report, that failure to identifjr hypoxic effects in the 

commercial fisheries data does not mean that they do not exist. But, if hypoxic effects do exist, 

their magnitude must be small in relation to other sources of variability in the data. The ability of 

the Topic 2 team to account for different sources of variability in the fisheries data was limited by 

the quality and extent of the information. In particular, data about the severity of hypoxic conditions in the Gulf of Mexico were limited to estimates for 1985-95. Given the naturally high 

variability of fisheries data, this time series may have been too short to establish a relationship 

between the severity of hypoxia and reactions within the commercial fisheries. The Topic 2 

team did attempt to develop a proxy variable for hypoxia based on nutrient discharge, thereby extending the length of the time series, but no linkage with the commercial fisheries was discovered. Still, the inability to identify hypoxic effects in the historical data does not imply that 

effects would not occur should hypoxia continue or expand in the Gulf of Mexico, as experience 

with hypoxia in other geographic areas indicates that effects of hypoxia become progressively 

larger as hypoxia worsens (Caddy 1993). 

While hypoxia reduction in the Gulf of Mexico may have many potential direct economic benefits, many indirect benefits may also be generated within the Mississippi Basin as a result of alternative nutrient management policies. Reducing nutrient loads by more efficient management 

of organic and inorganic fertilizers in crop production and concentrated livestock operations can 

generate monetary benefits for agricultural producers by lowering nutrient input or disposal costs. 

Alternative nutrient management strategies can also reduce soil erosion, depending on the 

adopted tillage technologies. Given the basin's size, it is unlikely that a complete information set 

exists to directly estimate these agricultural benefits. However, estimates can be obtained by using 

established agricultural policy simulation models and information contained in the literature. 

Along with the potential indirect agricultural benefits from reduced hypoxia, reduced nutrient 

loadings from agriculture should decrease contamination of surface- and aquifer-based drinkingwater supplies, and thus reduce the cost of obtaining potable drinking water. Decreased contamination of surface waters could also significantly expand the area of recreational waters suitable for such nonconsumptive uses as swimming-an important objective of the Clean Water 

Action Plan. Reduced nutrient loads-especially those originating from livestock operationsshould decrease the potential for the development of various water-borne human pathogens. 

Using management technologies, such as constructed and restored wetlands, to reduce the 
62 Economic Costs and Benefits ofReducing Nutrient Loads to the Gulf . -

downstream flow of nutrients would generate both consumptive (hunting, fishing) and nonconsumptive (bird watching, boating) benefits. Although all of these indirect benefits are potentially quantifiable, at best only partial information sets exist upon which to base reliable 

monetary estimates. I 

Loss of nutrients, sediment, and pesticides from agricultural land may cause economic losses for 

landowners and others effected by reduced environmental quality. Costs to landowners may derive from reduced farm productivity due to soil and nutrient loss or from expenditures to correct 

or avoid problems, such as clogged drainage ditches, flooding, or water contamination. These 

"on-farm" types of impacts may be experienced by farm operators and/or by adjacent landowners. 

Nutrient, sediment, and pesticide losses from agricultural land may also reduce the quality of 

freshwater resources and related ecosystems, and thereby reduce the value of services provided to 

their users. These services may include recreational uses, such as fishing and swimming; consumptive uses, such as drinking water; and aesthetic values associated with proximity to the resource. Other values associated with preservation of wildlife habitat and ecosystem diversity may 

also be important. While the on-farm impacts may be substantial, the off-farm benefits of control are generally considered to be much more significant (Crosson 1986). 

Economic measures to determine the magnitude of these losses vary depending on the type of 

activity. Conceptually, any measure seeks to estimate the "willingness to pay" to avoid a loss or, 

possibly, to benefit from an improvement in the resource. Willingness to pay has been accepted 

as the standard measure of changes in economic welfare for many federal environmental management evaluations (U.S. Water Resources Council 1983; Morgenstern 1997). In the case of 

on-farm impacts of nutrient, sediment, and pesticide losses, direct expenditures to correct or 

avoid problems are one measure of willingness to pay. However, losses to users of water resources 

are often more difficult to identify and may involve both use and nonuse values. 

Use values are related to recreational or other consumptive activities and are measured through 

revealed or stated preference methods of economic valuation (Freeman 1993). Nonuse values are 

less tangible and may result from a variety of concerns about water resource preservation; these 

values are typically measured through stated preference methods. Many..studies of nonpoint pollution provide estimates of "damages" as a measure of the potential economic benefits from reduced loadings. These estimated damages may understate the total benefits if they do not include 

the full range of potential benefits (Raucher et al. 1991). 

This section~discussesin greater detail the potential river system and watershed benefits from 

strategies for reducing nitrogen loadings, and provides empirical estimates of these benefits 

within the Mississippi kver drainage basin, when available. Due to the limited research on the 

benefits of reduced loading strategies, no aggregate estimate is provided for the drainage basin. 

Also, these benefit estimates are not directly related to particular control strategies. 

Reductions in nutrient applications to crops may have very different effects on agricultural pollutant loadings to streams and rivers than other control strategies, such as changes in tillage 

practices. Due to the lack of information about the linkage between control strategies and economic benefits to the watershed, no attempt is made to identify benefits with any particular 

strategy. Also, the choice of control strategy may trigger other pollutant concerns, such as onfarm ground-water contamination with increased nutrient retention (USDA 1995c; Crutchfield 

et al. 1997). 
Chapter 5: Environm'ental-Benefits 63.-

5.2.1 Sediment- and Erosion-Reduction Benefits 

5.2. I.I ON-FARM BENEFITS 

The on-farm economic costs of erosion occur from losses in crop yield andlor increased costs of 

practices to mitigate the effects of erosion. Soil erosion is the movement of soil by water and 

wind from one place to another. Soil moved by erosion carries nutrients and organic matter from 

the field and makes the crop-rooting zone more shallow. This may lower the soil's productivity 

by reducing its fertility, restricting its ability to infiltrate and hold water, and making the soil 

more difficult to till. On-farm costs of erosion are measured by long-term reductions in potential 

yields and increased costs of maintaining soil fertility through fertilization (Crosson 1998). 

The USMP model uses EPIC to estimate long-term soil productivity costs from soil erosion. 

The nutrient management scenarios generally reduced soil erosion in the Mississippi Basin and 

increased it elsewhere. On average, the alternative nitrogen-reduction strategies reduced productivity costs for the U.S., even though erosion generally increased. The pattern of erosion reductions and increases was such that overall long-term productivity increased. Productivity benefits 

are summarized in Table 5.2. 

TABLE 5.2. Summary of productivity and water quality benefits 

from reducedsoil erosion. 

Fertilizer Reduction 

500% Fertilizer Tax 

'Social welfare for wetland strategies includes changes in consumer and producer surpluses, plus wetland restoration costs. 

*Wetland filtering capacity: IS glm2. 

3Bufer filtering capacity: 4 glm2. 
64 Economic Costs and Benefits of ReducingNutrient Loadsto the Gulf - -

5.2. I.2 OFF-FARM BENEFITS 

The off-farm benefits of nutrient- and sediment-loss reductions cover a broad array of waterrelated uses and activities. The easiest types of benefits to quantify are those that occur when 

nutrients and sediments impair direct uses of water in a river or lake. These direct uses may include in-stream activities, such as recreational and commercial fisheries, navigation, and/or other 

recreation, such as swimming or picnicking adjacent to the water body. Other direct uses include 

the diversion of water for domestic or industrial purposes, such as drinlung water, manufacturing, or power production. Benefits can result from reduced treatment costs, reduced health risks, 

or reduced wear and tear on equipment. 

Due to the broadly dispersed nature of damages from nonpoint-source emissions, relatively few 

studies of potential benefits from nonpoint-source controls have been undertaken. One of the 

most comprehensive and relevant for the Mississippi River drainage is Ribaudo's (1989) regional 

breakdown and extension of Clark et al.'s (1985) national estimates of erosion damages. Table 

5.3 presents updated estimates of off-farm damages for various direct uses and activities, by region. While the estimates cannot be decomposed into damages related to nutrients versus sediments, they provide useful guidance on the magnitude of possible benefits. 

TABLE 5.3. Off-site damages from soil erosion, 

by farm production region. 

Northern Plains 

'Damages include: freshwater fishing, flooding, water storage, marine recreation, commercial fishing, navigation, 

roadside ditches, municipal water treatment, municipal 

and industrial water use, and steam power cooling. 

Source: Ribaudo 1989. 

Although other studies exist of the estimated contribution of specific rivers to regional economic 

activity within the basin (e.g., Vicory and Stevenson 1995), only a few conducted within the 

Mississippi River drainage basin provide estimates of the possible river system and watershed 

benefits from agricultural emission controls. For example, Forster et al. (1987) evaluated water 

treatment costs for 12 municipal water facilities in western Ohio. Their statistical analysis indicated that upstream erosion increased water treatment costs. They concluded each 10% reduc-
, Chapter 5: Environmental.Benefits 65 

tion in annual gross soil erosion would reduce treatment costs by 4%, resulting in significant 

savings within Ohio. Other possible benefits to recreation, navigation, etc., were not considered. 

The USMP estimates off-site damages from soil erosion and associated runoff using Ribaudo's 

estimates (1989). All the nitrogen-reduction strategies resulted in dverd water quality benefits 

from reduced soil erosion. While damages may have increased in regions experiencing increased 

erosion, greater benefits are obtained in regions where soil erosion decreases. Results are summarized in Table 5.2. 

5.2.2 Wetland Benefits 

5.2.2.1 WETLAND VALUATION STUDIES 

Public recognition of the value of wetland functions has grown rapidly over the past 25 years. 

However, the wetland values from such outputs as food and recreation, from such indirect uses 

as water quality and flood control, from future direct outputs or indirect uses (biodiversity or 

conserved habitats), and fiom the "existence" value of these wetlands often cannot be captured by 

individual landowners in the marketplace. Many now-recognized wetland benefits are nonmarketed goods, such as water quality and wildlife preservation. While these wetland functions are 

important to society, they have often been undervalued relative to conversion of wetlands to 

other land uses. 

Although some values derived from wetlands can be determined by using market transactions or 

by using income attributable to each factor of production used to produce marketable commodities (e.g., Lynne et al. 1981; Batie and Wilson 1979; Bell 1989), most economic values associated 

with wetland benefits must be estimated using nonmarket techniques. Eliciting use values with 

nonmarket techniques involves either revealed-preference approaches, such as travel-cost or hedonic methods, or expressed-preference approaches, such as contingent valuation and conjoint 

analysis (Scodari 1997; Anderson and Rockel 1991; Braden and Kolstad 1991; Freeman 1979). 

Values of people who do not use wetlands reflect the importance of the continued existence of 

the resource, or the option of using the resource in the future. 

Travel-cost methods are used for recreation sites, where the assumption is made that the cost of 

traveling to the site and foregoing income from working to use it are revealed measures of the 

value users place on the resource (Clawson and Knetsch 1966). Hedonic methods decompose 

the observed values of such goods as housing into various attributes, including environmental 

amenities that may influence price (Farber 1987). Contingent valuation directly elicits values 

through surveys, and can be used for both use and nonuse values (Bergstrom et al. 1990; Loomis 

et al. 1990). Finally, ecological functions provided by wetlands can be valued using replacementor avoided-cost methods that price the service provided in terms of equivalent man-made services 

(e.g., nutrient filtering), or in terms of avoided damages (e.g., from flooding or hurricanes) 

(Farber 1987). 

Marketed goods supported by wetlands include fish and shellfish production supported by nursery and feeding areas, and fur trapping supported by habitat for fur-bearing animals. Eight studies in Florida and Louisiana Gulf waters from 1975 through 1990 estimated values (in 1992 

constant dollars) ranging from $7 to $1,259 per acre of wetlands (Table 5.4). Fish and shellfish 

production generally supports higher values, averaging $624 per acre, while fur trapping supports 

values averaging $137 per acre. Median values are equal to the means. These values would gener-
66 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf . 

ally apply only to coastal or estuarine wetlands added to the drainage that directly communicate 

with braclush or saline waters and cannot be extended to freshwater wetland systems. 

TABLE 5.4. Economic values of wetland functions, Mississippi River drainage. 

Marketed Goods 

Fishlshellfish life support 

Fur-bearing animals 

Nonmarketed Goods 

General nonusers 

General users 

Waterfowl hunting users 

Recreation users 

Ecological functions 

Source: Heimlich et al. 1998. 

Most wetland values for nonmarketed goods are associated with fish and wildlife habitat. Nonuse values generally measure existence or bequest values derived from the utility of knowing such 

habitats exist and will be available to support ecosystems into the future. Three studies of general 

nonuse value associated with willingness to pay for marginal improvements or changes in migratory bird habitat and recreation in Nebraska and western Kentucky provide estimates ranging 

from $2,850 to $52,484 per acre, with a mean value of $23,538 per acre. The median value of 

the studies is $14,916 per acre. Nonuse values held by individuals are small, but are influenced by 

the number of people thought to hold them. For wetlands across the entire Mississippi drainage, 

the number of people holding such values and, hence, the aggregate value are likely to be large. 

Many people outside the drainage would also hold nonuse values for wetlands added to the 

drainage, so these estimates may understate the true nonuse value. These values would apply to 

all wetlands added to the drainage. 

Four studies in North Dakota prairie potholes and Louisiana coastal wetlands captured general 

willingness to pay for marginal changes in wetlands by wetland users. Averaging $2,710, the 

mean values estimated ranged from $105 to $9,859 per acre. The median value of the studies is 

$438. More specificuse values for fishing were estimated in four Louisiana, Florida, and Michigan studies, with a mean value of $11,105 per acre, ranging from $95 to $28,845 per acre. The 

median value of the studies is $7,741 per acre. Two studies of waterfowl hunting values in the 

prairie pothole region of the Northern Plains and Louisiana coastal wetlands averaged $142 per 

acre. General recreation uses were valued in seven studies in Louisiana, western Kentucky, the 

Corn Belt, and the prairie pothole region, averaging $942 per acre, with a range from $91 to 

$4,287 per acre. The median value of the studies is $327 per acre. These values would apply generally to most wetlands added to the Mississippi drainage. 
Chapter 5: Environmental Benefits 6 7 .. 

Values derived from either replacement cost or willingness to pay for marginal improvements in 

ecological services provided by wetlands were estimated in nine studies in Louisiana and the 

Corn Belt states. Estimated values averaged $4,430 per acre, ranging from $1 to $21,428 per 

acre. The median value of the studies is $1,946 per acre. Finally, one hedonic valuation study of 

the addition to value for housing in Minnesota estimated $573 per acr'e of wetlands in proximity 

to housing, based on the visual amenity added to the site. 

Based on these estimates, a mean value of about $750 per acre of coastal wetlands restored would 

account for marketed goods, such as fish and shellfish support and fur trapping. More generally, 

each wetland restored is likely to support nonuse existence and bequest values of $14,900-

$23,500 per acre. An alternative method of estimating these values is to multiply the population 

of the Mississippi drainage by the $22-$50 per respondent recorded in studies estimating these 

values. Wetland users value each additional acre of wetlands at $330-$1,585 for general recreational uses, $7,700-$11,000 per acre for fishing, and $142 per acre for waterfowl hunting. Ecological services provided by each additional acre of wetlands are valued at $1,900-$4,400. 

Assuming that a mihon acres of restored wetlands would include 100,000 acres in coastal areas, 

the median and mean estimates from the literature described above yield estimates of withinbasin benefits ranging from $25 billion to $40 billion if the more expansive nonuse values per 

acre are used, and from $11.8 billion to $21 billion if the more conservative per capita method of 

measuring nonuse values is used (Table 5.5). 

TABLE 5.5. Estimated economic value of wetland restoration aside from hypoxia mitigation. 

Commercial fisheries and fur 

Public Goods-Use Values 

General recreation 

Recreational fishing . 

1,000,000 

1,000,000 

330- 1,585 

7,700- 1 1,000 

Public goods-Nonuse Values 

Nonuser values 

3 50lcapita 22lcapita 

1,000,000 14,900-23,500 

Public Goods--Ecological Values 

Ecological Services 1,000,000 1,900-4,400 

'Based on a 1995 population of 76,039,000 for the Mississippi drainage area. 

Source: Heimlich et al. 1998. 
68 Economic Costs and Benefitsof ReducingNutrient Loads to the Gulf - -

Aside from nonuse values, benefits for recreational fishing within the basin comprise the largest 

category of benefits, followed by ecologicalservices. In the absence of more specific information 

on the geographic distribution and characteristics of wetlands likely to be restored, benefits from 

larger restoration targets (5-10 million acres) would be estimated,as simple multiples of the 1-

million-acre estimate. This ignores changes in the marginal values per acre of wetlands as more 

and more of the basin's wetlands are restored, and is thus a likely overestimate of benefits from 

larger restoration targets. 
CHAPTER6 I 

Ranking the Strategies 

6.1 SUMMARIZING THE BENEFITSAND COSTS 

OF HYPOXIA REDUCTION 

Chapters 4 and 5 presented estimates of the costs and intra-basin benefits of alternative strategies 

for reducing nitrogen loadings to the Gulf of Mexico. Table 6.1 combines the agricultural sector 

adjustment costs and the intra-basin benefits to calculate a net per-unit cost for reducing nitrogen loss, and Figure 6.1 depicts these results. Including benefits effectively reduces the cost of 

wetland and combined strategies relative to fertilizer-only strategies, because strategies that include wetland restoration provide larger benefits within the basin than fertilizer-only strategies. 

We need to keep in mind that a critical driving force for agriculture that makes nitrogen reduction difficult is the extremely high value in use of nitrogen. A pound of additional nitrogen, under the right circumstances, can provide a return of tenfold its cost in corn production. This 

gives an extremely strong economic incentive for applying insurance levels of nitrogen, which 

producers highly value. 

For the strategies analyzed, a strategy that restores 5 million acres of wetlands and applies a 20% 

nitrogen fertilizer restriction is the closest practicable, cost-effectively approach for meeting the 

20% N-loss goal. The 45% nitrogen fertilizer constraint comes close to mixed policy, and if a 

lower N-filtering capacity is assumed for wetlands, it would be the most cost-effective. The 

buffer strategy is the least desirable, due to high opportunity costs of retiring land, low nitrogen 

filtering relative to wetlands, and small environmental benefits. We could not estimate buffers' 

impacts on reduced sediment in surface waters; these benefits would lower the buffers' unit costs, 

but probably not to a degree to change the final result. 

The combined policy may have some additional desirable features not captured by a simple costeffectiveness measure. The mixed policy has a smaller impact on prices, and thus results in 

smaller adjustments inside and outside the basin. Less impact at the extensive margin in particular may be viewed more favorably, depending on which types of land are converted to cropland. 

The mixed policy we examined resulted in a 1.6% increase in cropland outside the basin, while 

the fertilizer reduction resulted in a 5.6% increase in cropland inside the basin. 

Any policy that includes wetland restoration would also be viewed favorably in light of the national decision of "no net loss" for wetlands. Such policies would in effect be fulfilling two national mandates: reduce the frequency and magnitude of hypoxic conditions in the Gulf, and 

contribute toward meeting the "no net loss'' goal. 
70 Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf . -

TABLE 6.1. Summary of economic impacts. 

N-Loss Reduction 

20% 

30% 

40% 

50% 

60% 

Fertilizer Reduction 

20% 

45% 

500% Fertilizer Tax 

Wetland Acreage 

1,000,000 

5,000,000 

10,000,000 

18,000,000 

Buffer 

20% Fert. Reduction 

and 5-Million-Acre 

Wetland 

'Social welfare for wetland strategies includes changes in consumer and producer surpluses, plus wetland restoration 

costs. 

'Net social costs include social welfare, erosion benefits, and wetland benefits. 

Our analysis. of strategies that included wetland restoration assumed that wetlands would filter 

15grams of N per square meter of wetland. A higher filtering efficiency would reduce the number of acres of restored wetlands necessary to achieve the nutrient-reduction goal, thereby reducing the unit cost. For the 10-million-acre wetland-restoration strategy summarized in Table 

6.1 to be as cost-effective as the mixed strategy, wetland filtering efficiency would have to double, to about 30 grams of N per spare meter. Such a level of filtering capacity has been recorded 

in field experiments (Mitsch et al. 1999), but for the 10 million acres of restored wetlands to average this level of N retention would not be expected. However, a relatively small increase in filtering efficiency for the mixed policy would hrther enhance its attractiveness. 

An important point of caution in interpreting the results is that the information on environmental benefits from restoring wetlands and reducing nitrogen and sediment runoff is limited. 

The values we used most likely underrepresent the use and nonuse values associated with the 

nitrogen-reduction strategies we present. If all the benefits could be accounted for, the final assessment might be different. 
Finally, we want to stress the importance of institutional factors, administration, monitoring, 

verification, and enforcement (whether by regulation or by markets). These all become even 

more critical as multiple strategies are employed requiring different combinations and levels of 

each of the above to successfully implement a strategy. I 

Chapter 6: Rankingthe Strategies 7 I -

20 40 60 

Percentage reduction in N-loss 

Least cost wetlands restoration A 20% & 45% Nfertilizer restriction 

Least costfield N loss redu i%! 109. 266 km ' reparian bufler 

Combined: 20,234 km' wetlands + 20 % N restriction 

Includes net farm cash income, consumer surplus, and introbasin benefits 

Assumes I5 &' wetland and 4 g/m3bufler denitrlfication. 

FIGURE 6.1 Agricultural sector adjustment costs per unit of N reduction, net of intrabasin 

benefits, by control method. 
CHAPTER7 

Institutional Considerations 

7.1 TRANSACTION COSTS 

Any policy mix to reduce agricultural nonpoint pollution in the Mississippi River system feeding 

the Gulf of Mexico implies a "cost of doing business'-a transaction cost. In fact, all market 

transactions entail a cost of gathering information, negotiating, and staking claim to the result 

(Schmid 1995). Randall (1975) defines transactions costs as "costs of resolving situations where 

involved parties have conflicting interests . . .including the cost of gathering information, determining their position and strategy; the cost of bargaining, negotiating, arbitration, judicial or 

other process by which agreement is reached .. .." Distribution of that cost is a reflection of the 

relative power of market participants, defined in property rights and other market rules. If government, acting on behalf of some water users who are able to attain the status of "public interest," alters the economic signals facing other water users through a regulatory or incentive 

mechanism to bring about changes in decisions to affect water quality, there are costs of enforcement, monitoring, and other steps required to ensure that the policy change has the desired 

effect. The total cost and its distribution among affected parties will vary with the technique selected. The management boundary chosen also affects that cost by influencing how those who 

gain from pollution and those who gain from abatement reconcile their differences. 

7.1. I Hydrologic versus Political Boundaries 

Hydrologic boundaries have long been accepted as the appropriate unit for managing complex 

river systems. Comprehensive river basin planning undertaken for the large river systems by the 

U.S. Army Corps of Engineers in the 1960s and by USDA for smaller upstream river segments 

emphasized watersheds as the management unit. President Kennedy drafted legislation in 1961 

to establish a Water Resources Council of federal agencies having water-related responsibilities 

and to establish river basin planning commissions to undertake comprehensive basin planning. 

These proposals followed recommendations of an earlier Senate Select Committee on National 

Water Resources (Holmes 1979). Although final approval of the basin planning process did not 

occur until 1965, interim procedures moved ahead and 20 framework and basin plans were under 

way when the Water Resources Planning- Act of 1965 was finally enacted (Holmes 1979). 

~risidentLyndon Johnson submitted the-first national water assessment to congress in 1968, 

based on river basins and sub-basins (U.S. Water Resources Council 1968). Local watershed 

protection efforts were supported through the Soil Conservation Service beginning in the 1950s 

(Holmes 1979). The Clean Water Action Plan reinforces that priority in current policy. 

Hydrologic boundaries acknowledge the reality that water flows downhill, and in so doing binds 

all people and activities along the way. The question is whether human communities can organize their affairs to respond to the physical reality of a watershed. So far, we have not been 
Chapter 7: Institutional Considerations 73 -. 

particularly successful. We have organized ourselves differently for convenience of governance, 

service delivery, and general identity or location. People live and pay taxes in municipalities, 

towns, counties, and states-not watersheds. Water quality is only one set of services that people 

care about. The practical problem of managing river systems requires, the costly and often frustrating process of cutting across or further dividing political jurisdictions. 

The City of Gainesville, Florida, for example, is divided by two very large river basins, each of 

which is served by a Water Management District with taxing authority. The St. Johns is to the 

east, the Suwannee to the west. There is no obvious line separating the basins, and residents expecting basically the same services from their local governments pay different taxes. Presumably 

the water quality services are different between the two basins, but those differences are not apparent to residents. 

The Mississippi system, the nation's largest, encompasses all or part of literally thousands of political jurisdictions that are connected by physical reality, though little else. There are many subbasins in the Mississippi that are less complex with more obvious internal linkages, but the basic 

incongruence between hydrologic and political boundaries remains. -

The Clean Water Action Plan places major emphasis on states (political jurisdictions) to develop 

nutrient standards and criteria that acknowledge important differences among aquatic ecosystems (hydrologic). There will be national guidelines and oversight, but state action. The cost 

of improving water quality will be shared, but the federal government will provide the major 

portion through Section 319 grants and with technical assistance to recognize that benefits of 

clean water are broadly distributed. Under the Clean Water Act, EPA is authorized to spend 

$130 million a year in cost sharing for nonpoint abatement (Sohngen and Taylor 1998). 

Success for the Gulf of Mexico and the Mississippi system depends on the degree of consistency 

from state to state in parts of each sub-basin and basin. It will require collaboration and negotiation between upstream and downstream jurisdictions within states and among states from one 

end of the basin to the other. Each political jurisdiction will perceive a different stake in the 

water-use decisions made, depending on their location and a different trade-off between water 

quality and other goals. These transaction costs are an inevitable part of water quality management, formalizing the adage that we think globally (Gulf of Mexico) ind act locally. Costs are 

particularly high with nonpoint abatement, where polluters and their relative contributions to 

the problem are poorly defined. 

7.1.2 Regulations and Incentives 

Water quality improvement since the passing of the 1972 Clean Water Act has relied primarily 

on required abatement technologies. Once regulators know that "best available technologies" or 

best management practices are in place, they are confident that the best possible effort to control 

pollution is being made. But these best practices often overlook opportunities to replace whole 

production systems at a lower cost and thus may stifle innovation (Tietenburg 1985). Implementation requires checking the water users to be sure they are installing required technologies, 

penalizing those who do not, and then dealing with any appeals. In the case of nonpoint pollution, there is stiff resistance to the basic idea of federally mandated farming practices and the 

practical problem of checlung compliance by thousands of farmers and loggers. Both types of 

implementation are expensive. 
74 Economic Costs and Benefitsof Reducing Nutrient Loads to the GUI~ 

Alternatively, performance-based regulations do not mandate specific practices and instead require achievement of defined water quality standards by whatever means the water user chooses. 

This approach requires extensive monitoring of water quality by river segment or by individual 

water user, holding all users responsible for the result. Innovative t~adingschemes are being considered to reconcile differences in compliance costs among types of water users. A polluter for - -A 

whom compliance with a standard would be very expensive may buy a right to pofiute from a 

user who can reduce pollution much more cheaply. Thus, overall water quality is protected 

through efficient trades among polluters, some of them point and others nonpoint sources 

(Apogee Research 1992). The transaction costs of these trading systems can be very high, in setting upthe market for pollution rights and designing appropr~at~rading ratios that control for 

the uncertainty inherent in nonpoint abatement techniques. There is the danger of allowing the 

trade and finding that water quality has not improved at all. A trading ratio that is too high 

(requiring too much of the purchaser) may discourage trades, thus having no effect on water 

quality (Sohngen and Taylor 1998). 

Pollution fees involve levying a tax on a certain increment of pollution, creating an incentive to 

reduce production costs by reducing pollution. Transaction costs in all incentive programs relate 

primarily to the cost of information. Success in reducing pollution requires that the tax be high 

enough to induce behavior change but not so high as to be unnecessarily punitive. If the fee is 

too low, the rational water user will just pay the fee and continue polluting. Data must be collected on the water quality impacts of a given tax structure. 
CHAPTER8 

Concluding Observations 

8.1 BENEFITS FROM REDUCING NITROCEN LOSS 

IN THE GULF AND MISSISSIPPI BASIN 

The direct benefits to Gulf fisheries of reducing nitrogen loads from the Mississippi River basin 

are very limited at best. (See the Topic 2 economic analysis.) We do not have the information 

necessary for estimating the benefits of such factors as restoring the ecological communities in 

the Gulf, which over the long term may be significant. 

In most cases, indirect cost savings to agricultural producers from reductions in fertilizer nutrients to cropland were modest. For the agricultural sector, commodity prices and aggregate producer net returns increase at increasing levels of reduction in nitrogen loss. This is not a benefit 

from nitrogen reduction directly, but derives from reduced production resulting from reduced 

fertilizer application. These begin to be significant when nitrogen-loss restrictions reach 30% 

and higher. One difficultywith these benefits is the problem of accounting stance (the question 

of whose benefits and costs we are enumerating). Severe restrictions on nitrogen loss from agriculture mean that production ceases on acres especially vulnerable to nitrogen loss and causes 

shifts to cropping systems that lose less nitrogen. Production of crops with high nitrogen losses 

is also increasingly shifted out of the basin. Some producers suffer these losses, while those remaining in production with cropping systems that provide relatively high value benefit from increased commodity prices as the supply is reduced due to nitrogen restrictions. Aggregate returns 

to agriculture increase, but costs are imposed on some who are constrained to abandon profitable 

production in order to meet nitrogen-loss goals. 

The values of potential benefits from nitrogen reduction within the basin are potentially significant. Even a modest program of fertilizer reduction and wetland restoration is estimated to produce benefits within the basin. These include the values associated with restored wetlands; 

improved recreational water quality; and reduced soil erosion, nutrient contamination of drinking water, and water-borne human pathogens from changes in cropping systems and livestock 

production. 

8.2 COSTSOF REDUCING NITROGENLOSS IN THE 

GULFAND MISSISSIPPIBASIN 

The Topic 2 economic evaluation team concluded that reducing nitrogen loss may cause shifts 

in species composition, which may result in costs to the recreational and commercial fishing industries. However, the available information is inadequate for estimating these costs. 
- .. 

76 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf 

As nitrogen is progressively limited, or as acres are taken out of production for wetland restoration, agricultural production within the basin and nationally is reduced and crop prices increase, 

affecting consumers. Changes in production practices to meet program goals also impose some 

adjustment costs on the agriculture sector. Table 4.7 presents the e'conomic impacts on producers 

and consumers for different levels of nitrogen reduction and for different levels of wetland restoration and buffers. 

We found only modest aggregate impacts on the agricultural sector for up to a 20% reduction in 

nitrogen loss (comparable to the 15-20% reduction in nitrogen losses from agriculture deemed 

feasible and recommended by the Topic 5 team). We found that restoring 5 million acres of 

former wetlands also had a minimal impact on agricultural production and related factors. At the 

10-million-acre level, price, land-use, and other impacts began to be noticeable. The Topic 5 

team was primarily concerned about producers' ability to achieve nitrogen reductions using feasible production practices. Our analysis accounted for the economic impacts on the producers and 

kept changes in acreage and exports well within the historic bounds of recent adjustments-a 

matter of concern to many in the agricultural sector. 

Livestock producers would bear higher feed grain costs as prices increase under nitrogen-loss restrictions. Consumers of basic commodities and the finished food and fiber products derived 

from them would suffer some loss from price increases caused by production changes and acreage 

restored to wetlands. 

One factor of concern that we were able to measure was increased nitrogen, phosphorus, and 

sediment loss in agricultural production that occurs outside the basin as nitrogen use is restricted 

within the basin. Reducing nitrogen losses to the Gulf is likely to impose additional pollution 

costs on the rest of the nation as an indirect impact. Price increases due to reduced production 

within the basin result in an intensification of crop production elsewhere. These potential environmental impacts are presented in Figures 4.3-4.5 for different levels of nitrogen reduction. 

Again, the extent of derived environmental impacts was very modest up to the 20% nitrogen-loss 

reduction level. 

There is also a potential cost from decreased agricultural export volumes that depends upon the 

level of nitrogen restriction (although the value of exports would increase because of price increases). Changes in export volumes were estimated for different levels of nitrogen-loss reduction. Again, these reductions become more important and begin to break out of historical 

bounds at and above the 30% nitrogen-loss restriction level. At 30%, corn exports are down 11% 

and wheat exports are down 23%; at 60%, corn and wheat exports are down 35% and 65%, respectively. The primary concern of the agribusiness industry is loss of sales in an expanding freemarket environment, where market share is voluntarily constrained to meet environmental objectives. Also, reduced acreage in production and reduced output can have negative impacts on 

input and shipping sectors. 

Social costs would also be incurred, such as dislocation in land use, agribusiness infrastructure, 

and farm communities. We can tell in some cases, and infer in others, where we might begin to 

incur unacceptable costs of this kind on the basis of previous historical shifts in crop production, 

land use, and input use. We did not estimate these costs. 

The case studies give some indication of the costs agricultural producers would face in reducing 

nitrogen losses. The aggregate analysis was driven by the criterion of profit maximization, so the 

strategies chosen by producers in the model were those that either improved or did the least 
Chapter 8: Concluding Observations 77 -' 

damage to their incomes. However, specific producers might incur severe costs, while others 

might benefit from reduced costs if constrained to lower nitrogen losses. 

For atmospheric deposition, we have presented previous case studies of the costs of adopting 

nitrogen-reducing management or technology. Reducing nitrogefi emissions from mobile 

sources appears to be more costly than reducing emissions from utilities, and both of these strategies appear to be more costly than initial efforts focusing on nonpoint sources when they are at 

the stage of eliminating easily reduced nitrogen losses. 

For the reduction of nitrogen from traditional point sources in the basin, we have analyzed the 

costs of nitrogen restrictions on the basis of existing plant-level technology, compared with the 

option of trading between point and nonpoint sources to achieve reductions. The least-cost approach in roughly half of the cases is for point sources to purchase nitrogen reductions from 

nonpoint sources. 

Administration, monitoring, verification, and enforcement costs are very real and important, but 

have not been included here. They must be included as specific policy approaches are chosen for 

analysis. For example, one of the keys to nonpoint-source reductions will be adequate verification 

that the reduction is in fact taking place. This is especially critical if point sources trade for reductions with nonpoint sources. For nonpoint-source reductions from agriculture, this will be 

confounded both by the time lag inherent in soil systems' behavior and by the current lack of 

monitoring capacity. 

The bottom line is that reducing nitrogen losses in the 20% range is feasible, and there are relatively cost-effective ways to achieve this goal. 

Wetland-based strategies are more expensive than fertilizer-reduction strategies to achieve 

the same nitrogen-loss reduction goal. Land-retirement costs and wetland-restoration costs 

outweigh the higher environmental benefits generated by wetlands. 

Vegetative buffers are not very cost-effective for the specific task of reducing the nitrogen 

losses we are concerned with here, due to low nitrogen filtering relative to wetlands, lower 

wildlife-associated benefits, and high land-retirement costs. 

Fertilizer Eestrictions are more cost-effective than a fertilizer tax, due to the tax's impacts on 

producers' net returns. 

A strategy that combined a 5-million-acre wetland restoration goal with a 20% fertilizerreduction goal was the most cost-effective, practicable approach for meeting a 20% nitrogen 

loss-reduction goal. Reducing fertilizer application by 45% met the 20% goal at a slightly 

higher cost. A policy that includes wetlands has additional advantages because it meets other 

policy objectives and probably generates wildlife and recreation benefits greater than those 

estimated here. Figure 8.1 summarizes this strategy, comparing its costs and benefits. 

The results of this report are based on estimates of wetland- and buffer-filtering capacities, and 

estimates of environmental benefits that are crude at best. The research in these areas is sparse 

and incomplete. 

Finally, cost-effectiveness depends upon the actual delivery of nitrogen at the point of concern. 

When the objective is reducing nutrients delivered to the Gulf, the critical issue is going to be 

the relationship between an action upstream and what actually comes out of the mouth of the 
78 Economic Costs and Benefitsof Reducing Nutrient Loadsto the Gulf . . 

river. Because such nonpoint sources as agriculture and the interacting soil systems represent a 

large volume of the absolute nitrogen in the system, a given percentage reduction of nitrogen 

loss from agriculture within the basin may result in a different proportional decrease in the 

amount of nitrogen flowing into the Gulf. I 

-10 

Costs Difference 

lntrabasin benefits 

.............................................................-. .................................. 

rWetland restoration costs 

rChange in consumer surplus 

0Change in-variablecosts 

Wetland benefits 

EJ Change in farm cash receipts 

0Erosion benefits 

120,234 km2 wetfands + 20% fertilizer restriction 

FIGURE 8.1. Illustrative costs and benefits of nonpoint nitrogencontrol in the U.S. 
APPENDIX A 

Animal Waste 

Livestock manure is believed to be a significant source of nutrient-related water quality problems. 

Manure is enriched primarily with nitrogen, phosphorus, and potassium. If these nutrients are 

oversupplied to fresh and coastalwaters, eutrophication and hypoxia can occur. According to the 

U.S. Geological Survey (USGS), livestock manure contributed approximately 20% of the total 

nitrogen and 50% of the total phosphorus loads in 1997 within the Mississippi Basin. The 

Topic 3 report examines the production of "recoverable" livestock manure within the Mississippi 

watershed and its effects on water quality (Goolsby et al. 1999). 

The increasing concentration of livestock within the Mississippi Baiin has degraded its water 

quality. Although leaks from the pits and lagoons used to store livestock waste also contribute to 

water quality problems, they are not the focus of this analysis. It is assumed that all manure storage units were constructed efficiently and that water degradation is only a result of inefficient 

land application of livestock waste and the problems associated with the nutrients supplied by 

this waste. 

Over the past 40 years, manure has continued to be a relatively constant nitrogen input to the 

Mississippi-Atchafalaya Basin (Figure 5.7 of Goolsby et al. 1999). During this same period, the 

structure of the various livestock industries has changed, resulting in fewer but larger farms. Although the number of farms has decreased, overall production has remained stable. The livestock 

industry has become more specialized and intensive with the emergence of confined feeding operations, thus creating greater volumes of liquid and solid manure in smaller areas (Sutton and 

Jones 1998). -

A detailed analysis of the changes in livestock production by McBride (1997) showed that in 

most animal sectors the number of animals per farm substantially increased between 1969 and 

1992 (Table A.l). For further discussion of the increased concentration of the livestock industry, 

Food System 21 (1997) continues with data up to 1996. 

The total number of animals in the basin has not changed significantly over time, thus explaining the constant input of nitrogen over the past 40 years. The main issue related to water quality 

degradation is associated with the increase in concentration of animals per area of production. In 

regions of high concentration, the amount of nitrogen produced is often greater than what the 

crops are able to absorb (Lander et al. 1998). Nitrogen that is not taken up by crops leaches into 

ground water, is captured in tiles, or is carried in runoff to surface water. This excess nitrogen 

degrades water quality. 
. . 

80 Economic Costs and Benefits of Reducing Nutrient L0ad.sto the ~hf 

TABLE A. I. Number of head per farm: 1 969 and 1 992. 

t 

Animal Type I969 1992 % Change 

Hogs 

Milk Cows 

138 

2 0 

588 

6 1 

' 326 

205 

Fed Cattle' 106 154 45 

Beef Cow 4 1 40 -2 

Broiler 70,798 237,622 236 

Layer 632 2985 3 72 

'Data for fed cattle are from 1978-92. 

Source: McBride 1997. 

The Mississippi Basin has approximately 31,893,250 animal units4. (For more specific analysis, 

Figure 5.7 of Goolsby et al. (1999) breaks down the basin into six sub-basins: the Ohio, Tennessee, Upper and Lower Mississippi, Missouri, and Arkansas-White-Red.) Table A.2 shows 

that the Upper Mississippi and Missouri have the greatest number of animal units among the 

sub-basins within the Mississippi watershed, and that the Arkansas-White-Red has the highest 

concentration of animal units per farm. 

TABLE A.2. Number of farms and animal units by sub-basin in the Mississippi water shed. 

Upper Mississippi 10,503,700 1 13.9 

Lower Mississippi 

Source: U.S. Mathematical Programming Model analysis, Economic Research Service, 

USDA. 

4~easurin~the number of animals by animal units allows for more accurate analysis. It assists in determining how 

much manure is produced within the Mississippiwatershed by all animals. An animal unit (AU) is defined as 1,000 

pounds of liveweight of any given livestock species or any combination of livestock species. AU equivalents are 

calculated for each livestock and poultry sector according to estimated rates of manure production per species. 

Thus, AUs vary by sector: I beef cow is equivalent to I AU, while 250 layers equal I AU. 
Appendix A: Animal Waste 8 I --

A.2 EFFECTS OF LIVESTOCKPRODUCTION ON WATERQUALITY 

Water quality problems associated with animal manure occur when more nutrients are supplied 

to the land than what the crops can use for growth. For the Mississippi Basin the estimated area 

of land suitable for application of manure is, 82,487,500 acres. Table' A.3 estimates the acreage 

available for manure application within each sub-basin. Tables A.4 and A.5, respectively, estimate the volumes of nitrogen and phosphorus supplied within each sub-basin from the application of manure to cropland. 

TABLE A.3. Estimated area of land for manure application. 

Miss. sub-basin Acres of Land 

Ohio 15,033,300 

Tennessee 1,676,700 

Upper Mississippi 25,602,850 

Lower Mississippi 1,895,750 

Missouri 29,642,250 

Arkansas-White-Red 8,636,650 

Source: U.S. Mathematical Programming Model analysis, 

Economic Research Service, USDA. 

TABLE A.4. Estimated manure nitrogen production. 

Miss. Sub-basin Pounds 

Ohio 336,492,200 

Tennessee 86,888,150 

Upper Mississippi 66 1,935,850 

Lower Mississippi 77,262,200 

Missouri 5 14,767,700 

Arkansas-White-Red 339,708,850 

Source: U.S. Mathematical Programming Model analysis, 

Economic Research Service, USDA. 

TABLE A.5. Estimated manure phosphorus production. 

Miss. Subebasin Pounds 

Ohio 1 19,807,150 

Tennessee 29,250,700 

Upper Mississippi 233,607,850 

Lower Mississippi 28,l 19,600 

Missouri 185,53 1,900 

Arkansas-White-Red 1 13,99 1,700 

Source: U.S. Mathematical Programming Model analysis, 

Economic Research Service, USDA. 
82 Economic Costs and Benefitsof ReducingNutrient Loads to the G~ilf. -

A.2. I Studies of Nutrient Overload 

Two nationwide studies were conducted focusing on the supply of nutrients from manure and 

land available for spreading. The resulting analyses of these studi~sidentified areas where more 

nutrients were available than what the land could absorb. The first study, by Letson and Gollehon (1996), looked at the areas within the U.S. with high nutrient application. They concluded 

that the Pacific, Southeast, Delta, and Appalachian regions have high total amounts of nutrients. Therefore, nutrient management policies could focus on these areas in order to potentially 

reduce water quality impacts from overabundant nutrient application. This study found that often when the amount of cropland per farm did not match the need for land application of animal manure, it would tend to lead to a higher probability of water quality degradation. 

The second study, by Lander et al. (1998), estimated the nutrient availability from manure and 

crop nutrient uptake and removal for each county in the 48 states. From these estimates, they 

calculated nitrogen and phosphorus availability relative to crop need. They concluded that areas 

exist where more manure is produced relative to the land available for application. Therefore, 

these results could assist in identifying areas likely to have water quality problems. 

Letson and Gollehon (1996) estimated the pounds of recoverable and total nutrients that are 

applied per acre of land suitable for spreading animal manure. This information, applied to each 

sub-basin, is illustrated in Table A.6. The total amount of nutrients was calculated from the 

total manure produced. Recoverable nutrients were calculated based on the economically recoverable manure from animals. The total amount of manure excreted cannot be entirely collected for 

land application. Therefore, the amount that can be economically gathered for disposal is referred to as "recoverable" manure. It is from the recoverable manure that the recoverable amount 

of nutrients is calculated. 

On average, the recoverable amount of N that is spread per acre within the entire Mississippi 

watershed is 15.69 pounds. The average total amount of N that is spread per acre within the basin is 25.07 pounds. The important result to derive from these numbers is they enable us to determine the quantity of nutrients applied at a rate that cannot be fully absorbed. To determine 

the impact on water quality it is necessary to identify what percent of these manure applications 

exceeds the amount of nutrients needed. 

TABLE A.6. Nutrients applied per acre from manure. 

Upper Mississippi 

Lower Mississippi 

Arkansas-White-Red 

Source: Letson and Gollehon 1996. 
Appendix A: Aniinal-waste^ 83 

Lander et al. (1997) estimated the percent of manure applications that exceed the amount of 

nutrients needed for each sub-basin (Table A.7). For instance in the Tennessee sub-basin, almost 43% of the total manure land applications exceed the amount of N needed for that basin, 

and over 66% of the applications in the same sub-basin exceed the amount of P needed. On average, the entire Mississippi Basin exceeds the amount of N needed 20%of the time and exceeds 

the amount of P needed 43% of the time. 

TABLE A.7. Potentialfor nitrogen available from animal manureto meet or exceed plant uptake and removal. 

Miss. Sub-basin NBafance P Bdance(%) 

Ohio 13.59 32.03 

Tennessee 42.97 66.03 

Upper Mississippi 11.77 41.13 

Lower Mississippi 4 1.2 1 41.18 -

Missouri 7.2 1 27.50 

Arkansas-White-Red 44.06 79.13 

Mississippi Basin (avg.) 20.00 43.00 @) Source: Lander et al. 1997. 

According to the data, it is evident that within the Mississippi Basin more nutrients from manure are being applied to the land than what can be absorbed. Nitrogen and phosphorus are being overapplied, thus contributing to water quality problems. Phosphorus tends to be more of a 

problem according to the data. Therefore, many of the issues that arise from manure disposal 

focus on phosphorus-related issues. 

A.2.2 Water Quality and Manure 

Negative impacts from animal agriculture on the environment have stimulated public concern in 

recent years. Nutrients from manure stimulate excessive growth of aquatic vegetation, which 

leads to eutrophication and hypoxia. In addition, soluble nitrogen has leached into aquifers, 

thereby damaging local drinking-water supplies. Pathogens and bacteria, also in manure, can 

impair surface waters used for drinlung and recreation (Letson and Gollehon 1996). 

Many of the public and political concerns that focus on animal manure originate from freshwate; impairments. ~ecaisephosphorus is the limiting factor in freshwater cdtures, it is an important component for stimulating vegetative growth in water bodies. When P is oversupplied, 

this vegetation grows at an excessive rate, which depletes dissolved oxygen and reduces biodiversity. It is common for P to be oversupplied when manure is applied based on the N needs of a 

crop. "Long-term application of manure, even at rates not exceeding the nitrogen needs of crops, 

can still result in soil buildup of P and K (Sutton 1998). This buildup of P can leach into 

ground water or can be transported in runoff and result in water quality degradation. States are 

beginning to consider changing land-application requirements to be based on the crop's P needs 

instead of its N needs. If this occurs, more acreage will be needed for land application, and the 

overapplication of N will be reduced (Sutton 1998). 
84 Economic Costs and Benefitsof ReducingNutrient Loads to the Gulf -

Since 1990, manure management has also been a concern for national policyrnakers. The 1990 

Coastal Zone Act Reauthorization Amendments (CZARA) was the first legal effort to address 

nonpoint-source pollution from agriculture by focusing on manure management. In addition, 

the Environmental Quality Improvement Program (EQP) also encourages improved management of animal waste. Most recently a joint effort of the U.S. Department of Agriculture 

(USDA) and the U.S. Environmental Protection Agency is focusing on the Unified National 

Strategy for Animal Feeding Operations (AFOs), where manure management plans will be 

formulated for all AFOs in order to reduce water quality impacts from animal agriculture. Other 

regulations being considered are requiring that manure be applied to land based on the crops' 

phosphorus needs, as opposed to their nitrogen needs. 

Pathogens and coliform bacteria originating from animal manure are important factors for water-related health problems, although for the issue of hypoxia in the Gulf of Mexico we are concerned only with the nutrients supplied by manure. 

A.2.3 Manure Management -

Manure contains the nutrients nitrogen (N), phosphorus (P), and potassium (K), which enhance both crop production and the chemical and physical properties of soil. The type and 

amount of nutrient contained in livestock manure vary, depending on animal type, amount and 

type of feed, method of storage, time and method of land application, soil characteristics, crops 

present, and climate. 

Each type of animal has a different nutrient content in its manure. Because poultry manure has 

the highest nutrient content, it has been found to be a suitable input for cattle feed (Mitchell 

and Donald 1995; Ruffin and McCaskey 1997).The numbers listed in Table A.8 vary between 

farms; thus, they are based on the average nutrient excretion from animals. For instance, the 

amount and type of feed a farmer uses can greatly influence the amount of nutrients excreted. 

TABLE A.8. Annual pounds of nutrients in manure, as excreted per 1,000 pounds liveweight. 

Source: Hommond et al. 1994. 

The method of storage also affects the N concentration of manure (Table A.9). N loss mainly 

occurs when it has been exposed to the sun and or air, which would occur in an open-lot system. 

When manure is stored in pits beneath the animal housing there is less N loss, although N loss 

is greatest in treatment lagoons. 
Appendix A: Animal-Was& 85' 

TABLE A9. Nutrient lossesfrom animal manure, as affected by method 

of handling and storage.'. 

Daily Scrape and Haul 

Manure Pack 

Deep Pit (poultry) 

Anaerobic Deep Pit 

Above-ground Storage 

'Based on composition of manure applied to the land vs. composition of freshly excreted 

manure, adjusted for dilution effects of the various systems. 

Source: Sutton et al. 1994. 

The method used for applying the manure on the land will also cause nitrogen loss (Table 

A.10).It is evident from this information that when the manure is incorporated, N loss to the 

atmosphere is significantly reduced. Incorporation also allows soil microorganisms to start decomposing the organic matter in the manure, thus making nutrients available to the plant 

sooner. P and K have been found not to be significantly affected by the application method; 

however, incorporating manure minimizes P and K losses from surface runoff. If manure is applied before crops are planted, nutrient availabilityis maximized (Hammond et al. 1994). 

TABLE A. 10. Approximate nitrogen losses from manure to the 

air, as affected by application method. 

- Application Method Consistency of 

Manure 

Nitrogen Loss' 

Broadcast without Solid 15-30 

Incorporation Liquid 10-25 

Broadcast with Solid 1-5 

lncorporation2 Liquid 1-5 

Knifing (injection) Liquid 0-3 

Irrigation Liquid 30-40 

'Percent of total nitrogen in manure applied that was lost within four days after 

application. 

Cultivation immediately afier application. 

Sources: Hammond et al. 1994; Sutton et al. 
86 Economic Costs and Benefitsof ReducingNutrient Loads to the Gulf 

A.2.3. I LAND APPLICATION EXAMPLE 

When applying manure to the land it is important to know the rate at which the waste should 

be spread. To reduce water quality impacts, the rate of application should be based on the crop's 

nutrient needs. Current state regulations require that manure be spfead at a rate based on the nitrogen requirements of crops (Sutton and Jones 1996). The application rate to spread the manure depends on the yield of the crop, the nutrient content of the manure according to the 

method of storage, and how the manure will be spread. All of these factors will affect the 

amounts of nitrogen available and needed for the crop. Through the use of AMANURE, a 

computer simulation program produced by Purdue University, the amount of acreage needed can 

be determined for a typical hog farm. In Table A.11 the acreage needed per sow was determined 

for corn (130 bu/ac) soybean rotation, a 15-foot swath, and incorporation. The acreage needed 

under the lagoon system is significantly less than for storage pits because of the high rate of nitrogen lost from storing manure in lagoons (Table A.9). 

TABLE A. I I. Acreage and application rate for manure per sow. 

The nutrient content of manure is not balanced. Animal manure contains a higher amount of 

N than of P (Table A.8), but a crop such as corn requires proportionally more nitrogen than 

phosphorus. Therefore, when manure is spread at a rate based on N, P tends to be applied above 

crop needs (Fleming et al. 1998). To combat this overapplication of P, policymakers may move 

toward requiring application of manure to be based on P rather than on N. A few studies have 

estimated the impact of this potential policy change. Fleming et al. (1998) concurred that 

"basing manure applications on phosphate levels rather than nitrogen-increases the value of manure nutrients because applied nutrients better match crop requirements. This also increases the 

cost of delivering hog manure because application rates on corn are reduced; hence more acres 

must be used for application." From the AMANURE results the increase in acreage requirements per sow almost doubles (Table A.11), illustrating Fleming's conclusion. 

With the increased acreage requirement for land application based on the phosphorus needs of 

the crop, it is useful to discuss the potential changes that could occur on a farm. With the use of 

MANURE, Table A.12 illustrates the number of acres needed for land application based on 

the herd size of a hog operation. The simulation again assumes a corn (130 bu/ac) soybean rotation, a 15-foot swath, and incorporation. Fleming et al. (1998) also concluded that "as herd size 

grows, however, costs of following a P-standard rise faster than the costs of following an Nstandard; thus, following an N-standard on continuous corn would eventually minimize net 

losses. Generally, marginal delivev cost increases because more acreage is needed to apply the 

same quantity of manure (mileage increases)." With continued concentration and growth of the 

livestock industry, manure management issues need to be considered. 
Appendix A: Animalwaste 87' 

TABLE A. 12. Total acres needed per year for land application of manure based on method of 

storage and nutrient constraint. 

Expansion issues arise when assessing whether enough land will be available for economical 

spreading. Does the farmer have more land available on site that could support the extra nutrients available? Can he apply them to the neighbor's field? Can he rent or buy more land? Can 

he give the extra nutrients to a custom hauler for ecologically safe disposal? The important consideration, if expansion in the livestock industry occurs, is land available for effectively disposing 

of the extra nutrients to avoid further water quality problems. If no economical land is available, 

alternative methods for disposing of manure may need to be explored. 

Waste management systems for dairy and hog operations typically use lagoon and liquid tank 

(pit) methods for storage. A study conducted by Bennett et al. (1994) reported the annual costs 

of operating lagoon and pit systems, which included costs for spreading manure. The study focused on dairy waste management systems in Missouri, and the data are used here to provide an 

example of representative costs a farmer would incur for manure disposal. There are also benefits 

to waste management, which are determined by the market value of the manure's nutrients. 

Lagoons are more commonly used in large hog and dairy operations because labor and investment costs are minimized and a flushing system can be used to collect and transport waste to the 

lagoon (Bennett et al. 1994). Manure is disposed of through an irrigation system pumped directly from the lagoon through a pipe, and spread on the land through irrigation equipment. 

Bennett's study uses a traveling gun, but other irrigation methods are available for farmers. In 

Table A.13 annual operating costs are listed for a dairy lagoon system in Missouri. The data assume that the farmer hires a custom irrigation system but owns other equipment. Bennett et al. 

found that when comparing the use of owned versus custom-hired traveling gun irrigation systems, it becomes economical to use custom-hired systems after the herd size exceeds 300 head. 

Liquid tank or pit systems are often used in smaller or medium-sized hog and dairy operations. 

Because manure is less liquid in this form, it has a higher market value due to a higher concentration of nutrients. Manure can be scraped for collection, or it is often required to agitate the 

manure in order to pump it into a tank wagon for spreading. Table A.14 lists the costs required 

for waste management, which includes the scraping, agitating, pumping, and spreading costs. 

The spreading cost is included in the use of the tank wagon, which disposes of the waste on the 

land. Bennett et al. concluded that the lagoon system becomes economical once the herd size 

exceeds 500 head. 
88 Economic Costs and Benefits of ReducingNutrient Loadsto the Giilf . -

TABLE A. 13. Annual operating and disposal costs of Missouri dairy lagoon system. 

---

4. Irrigation lagoon annual 

pumping cost (line 2 x line 3) 

5. Estimated acre-inches to 

6. Custom pumping 

8. Check labor hours/year2 

9. Annual labor costs (line 8 x 

'~ssumea traveling gun pumps 500 gallons per minute, which allows pumping one acre-inch per hour. 

2Check labor required to inspect the irrigation system periodically to determine ifthe traveling gun and equipment 

are operating adequately. Assume one hour per eight hours of operation. 

Source: Bennett et al. 1994. 

The market value or benefit received from delivered nutrients will depend on both ,the amount 

of nutrients used by the crop and the price of nutrients in the location of the farm. Table A.15 

lists the prices received for nutrients in Iowa, Indiana, and Missouri. The true cost of manure 

disposal should figure in the benefit a farmer receives in fertilizer value from the manure. 

Manure disposal cost depends on the storage and application methods and on the nutrient content of the waste. The cost to farmers will vary but the above example can provide an idea of the 

types of costs and benefits farmers incur when faced with manure disposal issues. Other issues 

that need to be considered are the timing of the manure application and the trade-off of how 

farmers will use the available labor time. A farmer may have more incentive to hire custom 

spreading services during planting time due to the high opportunity cost of labor. Land available 

for spreading is also an issue to consider. To avoid overapplication, enough land needs to be available to recycle the nutrients supplied by the manure. This issue is key to avoiding water quality 

damages originating from manure disposal practices. 
Appendix A: Animal Waste 89 -

TABLE A. 14. Annual operating costs of Missouri dairy liquid manuretank @it) system. 

Power Costs 

4. Scraper tractor $1,39 $2,3 16 $3,246 $5,098 $6,492 $9,738 

(line I x $7.62/hr) 

Labor Costs 

6. Tractor operators (line I I $3,16 $4,944 $7,428 $12,402 $18,528 $26,988 

(2 x line 3)3x $6/hr) 

7. Total operating costs $8,02 $12,502 $18.8 14 $3 1,457 $47,265 $68,674 

(line 4 + line 5 + line 6) 

8. Total operating costs 

'Based on one hour per 16,000 cu. fi waste. 

Hauling time (min.) per herd load: 100 cows-36 min.; 200-36; 300-42; 500-48; 750-54; 1,000-60. 

3Time on line 3 is doubled because one person is at agitation pump site plus hauling time. 

Source: Bennett et al. 1994. 

TABLE A. 15. Market value of delivered nutrients. 

Basin State Value ofNutrients (CenrslPaund) 

lowa' 0.15 0.29 0.13 

lndiana2 0.15 0.22 0.12 

~issouri~ 0.23 0.22 0.14 

NOTE: Only nutrients used by crops hold value. Nutrients applied in excess of 

crop needs have zero value. ' Data are from Fleming et al. 1998. 

Data are from Doster et al. 1998. 

Data are from Bennett et al. 1994. 

A.3 ECONOMICS AND POLICY CONSIDERATIONS 

The hypoxia condition in the Gulf of Mexico is assumed to be a result of excessive nutrient 

loading from the Mississippi River. The objective of the Topic 6 team is to identify both sources 

of nutrients within the Mississippi watershed and policies that could assist in reducing nutrient 

loads. According to the assessment of this section, livestock manure is a significant source of nu-
90 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf - -

trients. Because nitrogen has been chosen the nutrient target for causing hypoxia, policies should 

be designed for reducing nitrogen loads within the Mississippi Basin. For livestock, a policy that 

would require land application to be based on the phosphorus needs of crops could help control 

nutrient loadings from manure. I 

A few studies have addressed the impacts of such a policy on farmers, as well as its effectiveness 

in reducing water quality damages from animal nutrients. For example, Pratt et al. (1997) measured surface-water quality and changes in farm revenue for a variety of policies concerning dairy 

manure management in the upper North Bosque watershed in north central Texas. Fleming et 

al. (1998) measured the net benefit of a P standard for hog manure on continuous corn and 

corn-soybean rotations in Iowa. 

When estimating the economic impact of the change in manure application policy, it is important to assess the net benefits and costs of manure disposal. The two most important factors that 

determine the net benefit of swine manure in crop production are the distance the manure has 

to be hauled and the nutrient content of the manure. The farther a given amount of manure 

must be hauled, the higher the cost. And, up to a point, the more nutrients that are delivered to 

a field, the greater the value (Fleming et al. 1998). It is accepted in the literature that manure has 

a nonzero value because of its nutrient content (Roka and Hoag 1996). 

A.4 MANUREBENEFIT 

The value of manure is determined by the cost of commercial nutrients. Therefore, the farmer 

benefits from applying manure to crops by reducing commercial fertilizer purchases. It is important to mention that those nutrients applied in excess of crop needs have zero value; hence, manure value is determined only by those nutrients used by crops. According to Fleming et al. 

(1998), when manure disposal is based on a phosphorus standard as opposed to nitrogen, the 

benefit of manure increases because all the potential value of applied nutrients is captured. For 

corn fields, the farmer will not benefit from reduced commercial fertilizer application because 

with a P standard the N requirement of corn will not be met, and the farmer will apply ad&-

tional commercial N fertilizer. 

A.4. I Disposal Cost 

Table A.12 shows that when basing manure disposal on the phosphorus needs of the crop, the 

acreage needed increases significantly. Table A.16 illustrates the variable costs for a pit and lagoon system in Iowa, which represents the costs incurred under different policies. Therefore, in 

most situations the marginal disposal cost increases due to the increase in distance needed to 

travel to dispose of the same amount of waste. This result was concluded in Pratt et al. (1997) as 

well as Fleming et al. (1998). However, Fleming et al. found that when the policy was applied to 

a corn-soybean rotation, marginal delivery costs actually decreased because under an N standard 

the farmer was not allowed to dispose of manure on soybean fields because soybeans do not require nitrogen supplements. Alternatively, soybeans do require phosphorus; hence, under a P 

standard the farmer is able to apply manure waste to soybean fields. 
Appendix A. Animal Waste 9 1' 

TABLE A. 16. Average custom costs of delivering nutrients in Iowa swine manure to corn and 

soybeans. 

Unit Mileage Charge 

Source: Fleming et ol. 1998. 

As herd size increases, the delivery cost of manure will increase to a point where the value of manure will no longer provide a significant reduction in the overall costs. It has been documented 

for the hog industry (Boland 1998) that as herd size increases there is a point where it becomes 

economical to store manure in lagoons. As herd size increases there is a greater need for minimizing nutrients from manure. This is due to limited land availability, delivery cost, and the need 

for meeting environmental constraints. A concern for farmers with the policy changing to a P 

standard is the increased land needed to dispose of the same amount of manure, which may lead 

them to switch to the lagoon sooner (at a lower number o'f head) than under the N standard. 

With the need for reducing nutrients, a method of storage that will minimize the amount of 

nutrients available may be the optimal solution. Therefore, farmers may switch to lagoon systems, as opposed to deep pits, to minimize nutrient availability and the land requirements needed 

for disposal. 

Fleming et al. (1998) found that changing the manure disposal standard based on the crop's P 

needs benefited hog farmers. This is due to their analysis focusing on finding the optimal herd 

size based on the returns to manure nutrients, not on the return from the market value of hogs. 

Because the return on manure is significantly smaller than the market value of a hog, a farmer 

will tend not to make decisions based on manure value. Pratt et al. (1.997) concluded for dairy 

farmers that a policy change to a P standard would reduce net returns under all policy options. 

We can conclude that in certain areas of livestock production, basing manure disposal on the 

phosphorus requirements of crops will generally reduce farm revenue. 

A.5 NUTRIENTS 

Not only is it important to understand the economic impacts of a policy change; the policy's effectiveness should be considered as well. For the hypoxia issue, this entails assessing whether the 

amount of excess nutrients is reduced. Nitrogen is the greatest concern, but phosphorus is also 

considered. Through the results of the AMANURE program from Table A.16, the amount of 

nutrients provided by manure was calculated. The program also determined the amount of nutrients overapplied (excess) and the amount supplied below crop needs (deficit). Table A.17 lists the 

amount of nutrients supplied by manure for each disposal method, crop, and nutrient target. 

When the P standard is applied to corn, all nutrients are not applied in excess, and nitrogen disposal is actually reduced. Therefore, a P standard would be effective for reducing nutrient loadings from animal manure for corn fields. Alternatively, when the P standard is applied to 

soybean fields, nutrient loadings are different. Because soybeans need P, farmers can apply ma-
92 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf 

nure on soybean fields. Though this may not increase the amount of excess P, it does increase 

the amount of excess N, which was not in the system under an N standard because soybeans do 

not need nitrogen, so farmers were unable to spread manure on soybean fields. Also Pratt et al. 

(1997) found that switching to a P standard for coastal wheat rotation increases excess nitrogen. 

Therefore, if the objective for solving the hypoxia problem is to reduce the amount of nitrogen 

reaching the Gulf of Mexico, a P standard may not be an effective solution. 

Table A.17 also shows the change in net benefit of the nutrients with the policy change. The 

net benefit is generated by first calculating the market value of nutrients used by the crop, and 

subtracting the value of nutrients lost through their overapplication. When application is based 

on the crop's phosphorus needs, less nutrient value is lost, and the net benefit is generally higher 

under both corn and soybean pit and lagoon systems. 

A.6 CONCLUSION 

The impact on water quality from animal manure nutrients has become an important issue in 

recent years. Nutrients from manure supplied within the Mississippi Basin are believed to contribute to the hypoxia problem in the Gulf of Mexico. The contribution of nitrogen within the 

system from animal agriculture has remained relatively constant over the past 40 years, although 

when the industry structure is examined, it is evident the concentration of animals has substantially increased. In these areas of high animal concentration, often more nutrients are supplied 

than what the environment can absorb, thereby resulting in water quality problems. 

Under current land-application regulations, phosphorus tends to be applied at a rate greater than 

what the crops can absorb. As a result, it collects in soils and surface-water bodies, causing a variety of water quality problems. For the hypoxia issue, nitrogen has been the main focus for regulation. However, it is important to mention at this point that phosphorus was found to be "the 

forgotten nutrient" in the hypoxia in Chesapeake Bay (Blankenship 1997). Therefore, both nitrogen and phosphorus regulations may need to be considered. 

As animal agriculture expands, it is important to ensure that there is enough land available for 

spreading manure. The methods applied within Chesapeake Bay for reducing the nutrient impacts from livestock include establishing nutrient management plans. The objective of these 

plans is to match the nutrient requirements of the crops for both nitrogen and phosphorus, 

. thereby reducing runoff and leaching of excess nutrients (Alliance for Chesapeake Bay 1996a, 

1996b; Blankenship 1998). 

A policy alternative for potentially reducing nutrient loads from animal manure is to change land 

application to be based on the crop's phosphorus needs. While this policy is successful in reducing excess phosphorus in the system, it may not be effective in reducing nitrogen when not applied to corn fields. It is also found to reduce farm revenue. 

Nutrients supplied by animal manure can be reduced to the Mississippi watershed by establishing 

manure management plans that match the amount of nutrients supplied to the crop's needs. In 

areas where nutrients are oversupplied, other disposal alternatives may need to be considered. 
Appendix A: AnimalWaste 93 

TABLE A. 17. Comparingthe amount of nutrients supplied by manure and their 

value for each nutrienttarget. 

Nutrients Needed by Crops (Ibs.lacre) 

Phosphorus (P) 173 . 100 

Nutrients Supplied by Manure That Were in Excess or Deficit of Crop Needs (poundslacre) 

23 -123 

Value of Nutrients Used by Crops Based on Indiana Fertilizer Rates ($lacre)*** 

61.66 44.89 63.1 48.94 45 30.24 

Total Fertilizer Cost if Nutrient Needs Were Supplied by Commercial Fertilizer ($lacre)  

63. I 63.1 63.1 63.1 45 45 4 5 4 5 

Commercial Fertilizer Cost After the Application of Manure ($lacre)** *** 

1.44 18.21 0 14.16 62.76 0 68.32 1 1.52 

Total Value of Manure ($lacre)****** 

61.66 44.89 63.1 48.94 45 30.24 45 33.48 

* Because soybeans can create their own nitrogen, they do not need nitrogen to produce. On the other hand, 

soybeans will use available nitrogen, such as that supplied by manure. ** Although 180 pounds of nitrogen were supplied by manure and taken up by the soybeans, a nitrogen credit 

is given because soybeans do not need the N, but will use what is available. Therefore, the N supplied by 

manure was neither over- nor underapplied, *** This number is generated on the market value of nutrients: N = $O.l5llb; P = $0.22/lb; and K = $0.12/lb. 

These rates were.then multiplied by the pounds of nutrients used by the crops. Nutrients supplied in excess 

are considered to have a zero value and do not contribute to the value of manure supplied to crops.   This is the cost (only the cost of the nutrients, not the application cost), the farmer would have to pay if the 

nutrients needed by crops were supplied by commercial nutrients only. 

** *** After crediting the nutrients from manure, the commercial fertilizer cost is shown below (nutrient cost only). 

******The value of manure is often referred to as the cost savings between what the farmer would have had to 

pay for commercial fertilizer minus what he actually had to pay after considering the nutrients supplied by 

manure. This value is the same as the value of nutrients supplied times the market rate for nutrients. 

NOTES: According to the current regulations, manure is to be supplied based on the nitrogen needs of the crops. 

Since soybeans do not need nitrogen, farmers may not apply manure to their soybean fields. 

The phosphorus needs for each crop are based on the assumption that the soil test P levels are 0-5 ppm. 

In addition, the K needs are based on the assumption that soil test K levels are 0-40 ppm. 

These nutrient needs numbers can be obtained from any fertilizer recommendations table. 
APPENDIX B 

Atmospheric Deposition of Nitrogen 

B. I BENEFITS AND COSTS OF REDUCING DIFFERENT 

SOURCES OF ATMOSPHERIC DEPOSITIONOF NITROGEN 

As it has been broadly explained in previous sections, nitrogen is responsible for several varieties 

of adverse consequences to the health of estuaries and coastal waters. Traational sources of nitrogen pollution that have been extensively studied are direct discharges from sewage treatment 

and agricultural runoff. 

Recently, atmospheric deposition of nitrogen has gained attention as another important source 

of nitrogen pollution. For example, the latest studies in the Chesapeake Bay estuary established 

that atmospheric nitrogen deposition in the watershed is responsible for 27% of the nitrogen 

load in the bay, suggesting that atmospheric deposition cannot be excluded from any analysis of 

the nitrogen pollution issue. 

B.2 RECENT FINDINGS ON SOURCES AND LOADINGS 

B.2. I Characteristics of Atmospheric Nitrogen Sources 

Most nitrogen compounds in the atmosphere fail into three categories: reactive nitrogen, reduced nitrogen, and organic nitrogen. Reactive nitrogen is the largest contributor to atmospheric deposition-40-60%; reduced nitrogen follows, with a contribution of 20-40%; and 

finally organic nitrogen, which contributes 0-20%. 

Reactive nitrogen compounds are primarily oxides of nitrogen (NO,),. which are produced during 

the combustion of fossil hels. Dominant sources of NO, include emssions from motor vehicles 

and power-generation plants. The NO, reacts in the atmosphere with other gases, initiating a 

cycle that eventuallyturns into ozone (0,) and nitric acid (NHO,), which is easily and quickly 

deposited on the surface and runs into streams. 

Reduced nitrogen compounds are ammonia (NH,) and ammonium (NH,+). Once again, the 

most important source of these compounds is fossil fuel combustion. These compounds are 

highly reactive and have a short life in the atmosphere. They quickly deposit in the areas near 

their source, react with other components, and convert into nitrate salts, which finally end up in 

streams. 
Appendix B: Atmospheric Depositionof-Nitrogen 95 - -

Organic nitrogen is the result of NO, reaction with certain hydrocarbons during combustion. 

This type of nitrogen pollutant has been currently studied to some extent; however, its contribution to nitrogen pollution in coastal waters is still a matter of research. 

B.2.2 Recent Findings on Sources and Loadings 

In the last few years several efforts have been taken to calculate watershed loads from atmospheric deposition. A recent analysis by the National Atmospheric Deposition Program (currently 

undergoing final review), entitled "Atmospheric Deposition Estimates of Nitrogen to the Atlantic and Gulf Coast of the United States," provides some highlights for average annual deposition: 

nitrate loading ranged from 1.26 to 4.56 kg/ha; 

ammonium nitrogen ranged from 1.01 to 2.50 kg/ha; and 

organic(in0rganic) nitrogen ranged from 2.78 to 6.71 kg/ha. 

According to Scott Dinnel's (1995) Estimates ofAtmospheric Deposition to the Mississippi Watershed and EPA's (1998b) The Regional NO, SIP Call and Reduced Atmospheric Deposition of 

Nitrogen, atmospheric deposition loads from the Mississippi watershed are 17% of the total nitrogen load to the Gulf. Another study by Baker (1996) has estimated that atmospheric deposition contributes about 23%. of the total nitrogen load in the Gulf coast estuaries. 

Considering the importance that most recent research has given to atmospheric nitrogen deposition as a contributor of nitrogen pollution into coastal waters, control of atmospheric nitrogen 

sources has a significant potential for reducing total nitrogen loadings. As noted above, atmospheric nitrogen is largely produced from the combustion of fossil hels by automobiles and 

power-generation plants. Mobile sources of atmospheric nitrogen (motor vehicles) contribute 

30-40% of the total atmospheric nitrogen deposition in Chesapeake Bay, and utility and nonutility point sources contribute 3040% of the total deposition (Dennis, in press). 

In a few words, atmospheric loads from fossil fuel combustion represent a large proportion of the 

total nitrogen deposited to surface waters according to research from several organizations in recent years. Reducing emissions of atmospheric nitrogen from the burning of fossil fbels has a 

great potential for significantly decreasing nitrogen loadings and, therefore, for improving the 

health and ecology of estuaries. 

Tampa Bay and Long Island Sound are focusing on controlling nutrient runoff from urban 

nonpoint sources, which is the most expensive nitrogen to control. Albemarle/Pamlico Sound 

and Chesapeake Bay have more diverse conditions, including urban and agricultural sources and 

controls. The difference between the latter two is that the first includes a larger proportion of 

agricultural sources and controls than the second. Given the size and diversity of the Mississippi 

Basin, the cost of additional controls of nonatmospheric nitrogen would be between the values 

obtained for Albemarle/Parnlico Sound and Chesapeake Bay (Table B.l). 
96 Economic Costs and Benefitsof Reducing Nutrient Loads to the Gulf -

TABLE B. I. Cost of reducing nitrogen load from nonatmosphericsources. 

2 Cape Cod Bay 78.00 . 136.84 62.00 

3 Chesapeake Bay 48.12 2 1.83 

4 Delaware Bay 96.00 137.14 62.00 

5 Delaware Inland Bays I 1.00 137.50 62.00 

6 Gardiners Bay 25.00 138.89 62.00 

7 Hudson Bay 89.00 136.92 62.00 

8 Long Island Bay 196.00 233.33 105.84 

9. Massachusetts Bay 26.00 136.84 62.00 

10 Narragansett Bay 25.00 138.89 62.00 

II Sarasota Bay 1 .OO 100.00 62.00 

B.3 COST OF REDUCING THE AMOUNT OF ATMOSPHERIC 

NITROGEN DEPOSITION 

In reviewing cost of reducing atmospheric nitrogen deposition, we faced the same problem as 

studying the benefits. Unfortunately, this area is just starting to be studied and very few studies 

have been undertaken. So far, there are no estimations for the Mississippi Basin, and the best 

cost analysis found to date is Atmospheric Nitrogen Deposition Loadings to the Chesapeake Bay: 

An InitiaZAnalysis ofthe Cost-Efectiveness ofControZ Options (Pechan 1997). This section describes the estimates obtained for Chesapeake Bay and suggests how to use that information to 

obtain an adequate approximation of the cost for the Mississippi Basin. 

This report presents the cost of reducing NO, emissions from the most important sourcesutilities, motor vehicles, and other nonutility point sources that burn large amounts of fuel fossils. Table B.2 summarizes the cost of reducing nitrogen loads from atmospheric sources. Figures 

B.l and B.2 show the cost of reducing nitrogen loads per pound of nitrogen from utility and 

mobile sources as a function of the total reduction in nitrogen emission. 

B.4 TRADE-OFFS BETWEEN POINT AND NONPOINTSOURCES IN 

REDUCING ATMOSPHERICNITROGEN LOADINGS 

Since this area of research'on economic impacts is just starting to develop, not many studies have 

been conducted. One of the most recent appraisals of the economic impacts from reducing atmospheric nitrogen is EPA's Benefits ofReducing Deposition of Atmospheric Nitrogen in Estuarine and Coastal Waters (1997). 
Appendix B: Atmospheric Deposition of Nitrogen 97 

TABLE B.2. Nitrogen load reductionfrom atmospheric sources and cost by source. 

Mid-Atlantic States 

District of Columbia 

Other States 

North Carolina 

Cost of NO, Emission Reduction ($ltonlyear) 

Mid-Atlantic States 

District of Columbia 

Northern Virginia 

Other States 

Tennessee 1,100 7,800 4,900 

Virginia 1,000 7,600 5,800 

West Virginia 1,000 7,500 6,300 

The basic approach followed by this EPA study is to evaluate benefits from reducing atmospheric nitrogen loadings as the opportunity cost of reducing nitrogen from other nonpoint 

sources that would be needed in order to meet and maintain water quality goals in the estuaries 

examined. Twelve estuaries were selected for these studies: 10 are along the Atlantic coast and 

two-Tampa Bay and Sarasota Bay-are along the Gulf coast. Since sufficient data were not 

available for all the estuaries, detailed costs were obtained for only four estuaries: Tampa Bay, Albemarle/Pamlico Sound, Chesapeake Bay, and Long Island Sound. Then an average was obtained from these four estuaries to obtain a cost for the other eight estuaries. We concentrated 

on the four watersheds with detailed information. 
The cost of nonpoint-source controls ranged from $0.61 to $45.27 per pound of nitrogen load 

for agricultural best management practices and from $35.00 to $142.64 per pound of nitrogen 

load for urban nonpoint-source controls. Table B.l shows the cost estimates for the different 

estuaries. Higher cost per unit of nitrogen is associated with smaller, more urban estuaries, which 

typically have fewer technical and financial options available. For the eight other estuaries, the 

mean cost per pound of nitrogen from the four case estuaries was estimated to be $62.00. 

98 Economic Costs and Benefits offleducing Nutrient Loadsto the Gulf 

0 50 100 150 200 250 300 

Tons 

FIGURE B. I. Utilitysource cost per ton of NO, emission reduction. 

0 5 10 15 20 25 30 35 40 

Tons 

FIGURE B.2. Motor vehicle source cost per ton of NO, emission reduction. 
Appendix B: Atmospheric Deposition of Nitrogen 99‘ 

Finally, we estimated the cost per pound of nitrogen loaded into Chesapeake Bay by calculating 

the percentage of the deposition that eventually will end up in the bay. The percentage contribution changes by region: the closer to the ocean, the higher the proportion of nitrogen deposited on the ground that ends up in the bay. Table B.3 shows our resdts. 

TABLE B.3. Nitrogen load reduction and cost. 

Pennsylvania 1 78.2 

West Virginia 155.5 

Mobile Sources 
APPENDIX C 

Overview of the EPIC Model 

C.I THEEROSION PRODUCTIVITYIMPACTCALCULATORMODEL 

The Erosion Productivity Impact Calculator (or EPIC) model was developed in the early 1980s 

by the U.S. Department of Agriculture's (USDA's) Agricultural Research Service to assess the 

long-term impacts of soil erosion on crop productivity. EPIC is a daily time-step mathematical 

simulation model that integrates numerous physical and biological components, including crop 

growth, hydrology, weather simulation, nutrient cycling, crop management practices, erosionsedimentation, economic accounting, soil temperature, and plant environment control 

(drainage, irrigation, fertilization, etc.). Unlike many hydrologic models that focus solely on the 

physical processes, EPIC explicitly models the daily interaction of crop growth, soil, weather, 

and nutrient cycling. The model is also capable of simulating multiple cropping systems and 

management practices over long periods of time (50-4,000 years). 

Because soil erosion can take several decades to affect crop yields, the EPIC model was designed 

to attain four goals: (1) develop a realistic, physically based model of erosion with readily available 

input data; (2) simulate processes over long time horizons; (3) produce valid results over a wide 

range of crops, soils, arid climates; and (4) provide a computationally efficient model. The current PC and mainframe versions of the model accomplish these goals. 

EPIC is characterized as a lumped-parameter model because the drainage area considered, usually 

around one hectare, is assumed to be spatially homogeneous on the surface. It assumes the area 

simulated is a single soil type with constant slope and surface roughness throughout. However, 

the model does consider vertical variation in soil properties associated with a given soil profile. 

The first step in using EPIC involves specifying simulation input parameters that include general information on the size, slope, and elevation of the area; weather and soil data; and crop 

management information. The weather data can either be entered from actual daily observations 

or simulated from long-term distributions. Input data for daily weather simulation include 

monthly distributional parameters for maximum and minimum temperature, precipitation, 

Markov probabilities of weddry states, humidity, solar radiation, and wind velocity and direction. 

Soil input data include 21 parameters for each layer and up to 10 layers per soil type. The crop 

management information entails the sequencing of crops, timing of planting and tillage, fertilizer amounts and timing, irrigation if required, and harvest operations. 

On a daily simulation basis, weather data are used as input into several sub-routines that track 

surface and subsurface hydrology, evaporation, changes in soil properties, crop growth, nutrient 
Appendix C: Overview ofthe EPIC.Model I0 tcycling, evapotranspiration, crop stress, and erosion. EPIC uses a generalized plant growth 

model with crop-specific coefficients to estimate daily plant growth. Daily plant growth is partitioned between roots, above-ground biomass, and crop yield. Estimated daily crop growth can be 

limited by one or more daily stress factors, including water, nutrients (N and P), temperature, 

and aeration. All dailyvalues are retained, and the model goes on to'simulate the next day. The 

daily time-step simulation continues by completing the annual loop, and then the multiple croprotation loop if it entails multi-year crop sequencing, until the entire evaluation period has been 

covered. 

The EPIC model can also be used to estimate crop yield and environmental parameter distributions by cropping systems. These distributions can be derived by changing the actual weather 

sequence or changing a seed number for the random weather generator. This feature of EPIC is 

important if one is interested in evaluating crop yield risk by management or fertilizer practice, as 

well as determining the range and probability of nutrient and pesticide loadings. 

EPIC simulations have been performed on over 160 test sites in the continental U.S. and Hawaii. These tests have shown that EPIC produces valid results over a varieg of climatic conditions, soil characteristics, and management practices (Williams et al. 1984). In addition, Foltz 

(1991) has shown that agronomic experts could not differentiate between EPIC-simulated crop 

yields and actual experimental plot yields over a four-year period in Indiana. 

While the EPIC model has been used extensively to evaluate the impact of soil erosion on crop 

productivity, more recent applications of the model range from simulating the movement of 

pesticides and nutrients to large-scale assessment of global climate change. The integrated modeling structure of EPIC and readily available data make the model conducive to evaluate a broad 

class of research issues. In fact, the model's name has recently been revised to the 

"Environmental Policy Integrated Climate" model to reflect this flexibility. 

One area where the EPIC model has been used is to provide per-acre/hectare estimates by cropping systems of sediment, nutrient, and pesticide loads. These estimates are then often used as 

technical coefficients in farm-level or regional mathematical programming models. Foltz et al. 

(1995) used EPIC to stimulate crop yields, organic nitrogen loss in runoff and percolate nitrogen for crop-rotation alternatives in the Midwest. Economic and environmental parameters 

from EPIC provided input for a multi-attribute assessment of cropping system selection. 

Specific to water quality research with EPIC, Mapp et al. (1994) used EPIC-PST to assess the 

economic and environmental impacts of limiting nitrogen fertilizers to protect water quality. 

Likewise, Helfand and House (1995) applied EPIC to California lettuce production to evaluate 

taxation versus regulation to reduce agricultural nonpoint-source pollution. Finally, Randhir and 

Lee (1997) used EPIC-WQ to simulate crop growth and pollutant loads for alternative cropping systems to provide input data for a multi-year regional risk-programming model. Results 

from this study show that nitrogen and pesticide restrictions involve not only economic and environmental trade-offs but also trade-offs among various nonpoint-source pollutants. 
102 Economic Costs and Benefits of ReducingNutrient Loads to the Gulf -

C.4 STRENGTHS OF EPlC 

One of the primary strengths of EPIC is its integration of physical and biological processes in a 

systematic modeling framework. EPIC can simulate the growth of over 20 crops ranging from 

corn, soybeans, and cotton to legume crops and trees. Over 600 soil parameter files and over 100 

long-term weather station data input files are available for application in the U.S. 

The model provides a wide range of biological and physical parameter outputs. On the biological 

side, these output variables include crop yield, crop growth, stress days, nutrient uptake, and crop 

residue. On the physical side, the model provides estimates of nutrient runoff (soluble and sediment attached), nutrient losses to subsurface flow, and leachate. These parameters can be reported as loadings (i-e., pounds per acre/hectare) or as concentrations (i.e., ppm). Other physical 

parameters include runoff volumes, pesticide runoff and leachate, and soil erosion. Specific to soil 

quality, the model can simulate changes in soil properties over time resulting from different crop 

and management sequences. These properties include soil organic matter, cation exchange capacity, pH, field capacity, and changes in soil layer thickness. 

From a policy perspective, output from EPIC can be used in analytic models to quantify the 

economic and environmental impacts of crop production and management changes. Simulation 

results derived under random weather conditions can be used to generate distributional information on crop yields, pollutant levels, and soil loss. These estimates are often required for risk assessment analysis. 

C.5 LIMITATIONSOF EPlC 

As with any model, the application of EPIC has inherent limitations. One of the first is the direct use of EPIC to simulate agricultural nonpoint-source pollution on a field or watershed scale. 

EPIC is a lumped-parameter model, which means that all hydrologic and soil parameters are 

uniform within the simulated region. Therefore, EPIC does not account for spatial interdependence of pollutant loadings that can occur within a field or watershed. Because EPIC is a 

lumped-parameter model, it is difficult to validate nutrient and pesticide runoff from watershedlevel, water quality monitored data. For example, tile-drainage systems-affect measured nutrient 

loads at the watershed outlet but are difficult to account for in the EPIC framework. 

A second limitation of EPIC concerns the large number of input variables required to run the 

model (over 200) and the large number of output variables it produces (over 125), which make 

model validation difficult. Most applications of EPIC validate and calibrate the model to crop 

yield. Few studies have validated EPIC predictions of key environmental parameters, such as 

nutrient or pesticide runoff and leachate on actual plot data. Many of the environmental estimates are highly sensitive to key input parameters. 

A final limitation of the model is the level of simplification of many of its sub-routines. For example, EPIC'S crop growth component is a simple daily biomass-accumulation model. Daily 

biomass is partitioned between roots, above-ground biomass, and crop yield. This simplification 

can cause problems if one wishes to model crop responses, for example, to climate change, because EPIC ignores important biotic processes, such as stomatic resistance. EPIC also does not 

explicitly consider pest damage, plant diseases, weed pressure, or soil microorganisms. Likewise, 

one may have difficulty in modeling new varieties or genetically engineered crops. The model 

contains over 25 crop-specific parameters. In modeling a new crop, knowing which parameter(s) 

to adjust and by how much becomes more of an art than a science. 
Appendix C: Overview of the EPIC Model 1 03 

C.6 CONCLUSION 

Despite EPIC'S limitations, the model is still well suited to evaluate the long-term impacts of 

soil erosion on crop productivity. Over the past decade the model has been extended to simulate 

pesticide loadings from crop production. Applications of EPIC range from hybrid tree production to animal waste disposal impacts on crop yields and pollutant loadings. 

In recent years, EPIC has been modified to address some of the spatial concerns. One modification, called APEX, is a hill slope version of EPIC. APEX can simulate three different 

sloped/cropped areas and include hydrologic routing between each area. This model extension 

can be useful to evaluate the water quality benefits of buffer strips or riparian buffers to reduce 

agricultural nonpoint-source pollution. 
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OTHER TITLES INTHE DECISION ANALYSIS SERIES 

No. 1 Able, Kenneth W., and Susan C. Kaiser. 1994. Synthesis of Summer Flounder Habitat Parameters. 

No. 2 Matthews, Geofiey A, and Thomas J. Minello. 1994. Technology and Success in Restoration, 

Creation and Enhancement of Spartina AlternzfL7oraMarshes in the United States. 2 vols. 

No. 3 Collins, Elaine V., Maureen Woods, Isobel Sheifer, and Janice Beattie. 1994. Bibliography of 

SynthesisDocuments on Selected Coastal Topics. I 

No. 4 Hinga, Kenneth R., HeeseonJeon, and Noelle F. Lewis. 1995. Marine Eutrophication Review. 

No. 5 Lipton, Douglas W., Katherine Wellman, Isobel C. Sheifer, and Rodney F. Weiher. 1995. Economic Valuation of Natural Resources: A Handbook for Coastal Policymakers. 

No. 6 Vestal, Barbara, Alison Reiser, et al. 1995. Methodologies and Mechanisms for Management of 

Cumulative Coastal Environmental Impacts. Part I-Synthesis with Annotated Bibliography; 

Part 11-Development and Application of a Cumulative Impacts AssessmentProtocol. 

No. 7 Murphy, Michael L. 1995. Forestty Impacts on Freshwater Habitat of Anadromous Salmonids in 

the Pacific Northwest and Alaska-Requirements for Protection and Restoration. 

No. 8 William F. Kier Associates. 1995. Watershed Restoration-A Guide for Citizen Involvement in 

California. 

No. 9 Valigura, Richard A, WmstonT. Luke, Richard S. Artz, and Bruce B. Hicks. 1996. Atmospheric 

Nutrient Inputs to Coastal Areas-Reducing the Uncertainties. 

No. 10 Boesch, Donald F., et al. 1997. Harmful Algal Blooms in Coastal Waters: Options for Prevention, 

Control and Mitigation. 

No. 11 McMurray, Gregory R., and Robert J. Bailey, editors. 1998. Change in Pacific Northwest Coastal 

Ecosystems. 

No. 12 Fonseca, Mark S., W. Judson Kenworthy, and Gordon W. Thayer. 1998. Guidelines for the Cbnseryation and Restoration of Seagrasses in the United States and Adjacent Waters. 

No. 13 Macklin, S. Allen, editor. 1998. Bering Sea FOCI (1991-1997)-Final Report. 

No. 14 Wiseman, William, editor. 1999. Nutrient Enhanced Coastal Ocean Productivity in the Northern 

Gulf of Mexico. 

No. IS Rabalais, N.N., R.E. Turner, D. JustiCQDortch, and W.J. Wiseman, Jr. 1999. Characterization 

of Hypoxia:Topic 1Report for the Integrated Assessment on Hypoxia in the Gulf of Mexico. 

No. 16 Diaz, R.J., and A. Solow. 1999. Ecological and Economic Consequencesof Hypoxia: Topic 2 Report 

for the Integrated Assessment on Hypoxia in the Gulf of Mexico. 

No. 17 Goolsby, D.A., WA Battaglin, G.B. Lawrence, R.S. Artz, B.T. Aulenbach, R.P. Hooper, D.R. 

Keeney, and G.J. Stensland. 1999. Flux and Sources of Nutrients in the Mississippi-Atchafalaya 

River Basin: Topic 3 Report for the Integrated Assessment on Hypoxia in the Gulfof Mexico. 

No. 18 Brezonik, P.L., V.J. Bierman, Jr., R Alexander,J. Anderson, J. Barko, M. Dortch, L. Hatch, G.L. 

Hitchcock, D. Keeney, D. Mulla, V. Smith, C. Walker, T. Whitledge, and W.J. Wiseman, Jr. 1999. 

Effects of Reducing Nutrient Loads to Surface Waters within the Mississippi River Basin and the 

Gulfof Mexico: Topic 4 Report for the Integrated Assessment on Hypoxia in the Gulfof Mexico. 

No. 19 Mitsch, W.J., J.W. Day, Jr., J.W Gilliam, P.M. Groffman, D.L. Hey, G.W. Randall, and N. 

Wang. 1999. Reducing Nutrient Loads, Especially Nitrate-Nitrogen, to Surface Water, Ground 

Water, and the Gulf of Mexico: Topic 5 Report for the Integrated Assessment on Hypoxia in the 

Gulf of Mexico. 

No. 20 Doering, O.C., F. Diaz-Hermelo, C. Howard, R. Heimlich, F. Hitzhusen, R. Kazmierczak,J. 

Lee, L. Libby, W. Milon, T. Prato, and M. Ribaudo. 1999. Evaluation of the Economic Costs and 

Benefits of Methods for Reducing Nutrient Loads to the Gulfof Mexico: Topic 6 Report for the 

Integrated Assessment on Hypoxia in the Gulf of Mexico. 
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