Integrated agri-environmental modelling: A cost-effectiveness analysis of two nitrogen tax instruments in the Vejle Fjord watershed, Denmark

A method of integrated economic and environmental modelling of agricultural production effects in Denmark is presented in this paper. The method combi nes a partial-equilibrium sector model for Danish agriculture; farm account statistics; a GIS-based procedure for spatial disaggregation of the agricu ltural production structure; a procedure for calculating farm economic outp ut, and a nitrate loading model. The method is applied by analysing two alt ernative nitrogen tax policies in terms of their effects on farm value adde d, nitrate leaching, and nitrate loading of coastal waters. The tax policie s are a per-unit tax on nitrogen in commercial fertilisers; and a per-unit tax on nitrogen in commercial fertilisers and purchased animal feed stuff. The cost-effectiveness of these two tax instruments is analysed by comparin g the costs of reducing nitrate leaching by 20 per cent using the two polic y measures. Results suggest that: (1) there are large differences between n itrate leaching from pig, cattle, plant and part time farms, (2) predicted spatial patterns of nitrate leaching and loading exhibit considerable spati al variations, (3) abatement costs are larger in the combined tax scenario and varies significantly between farm types. (C) 2000 Academic Press.