The Potential for Nitrogen Abatement Trading in Agriculture: A Hypothetical Market Experiment

Line B. Hansen, Mette Termansen and Berit Hasler

Journal of Agricultural Economics, 2019, vol. 70, issue 3, 812-839

Abstract: The effectiveness of nitrogen abatement trading as a policy measure relies on both heterogeneity in costs and environmental effectiveness across landscapes. Cost‐efficient implementation may therefore critically depend on spatial distributions of farm and farmer characteristics in water catchments. We use a spatially specific hypothetical market experiment to analyse the likelihood of farmers’ enrolment into nitrogen abatement trading contracts, and derive demand and supply functions for farmers’ nitrogen abatement. We find that farm characteristics influence both the decision whether to supply or purchase nitrogen abatement, as well as the amounts being traded. The derived demand and supply functions for farmers’ N abatement, using hypothetical market experiment data, can be used to reveal the variability in costs of abatement within a market. This provides valuable information to test potential trading schemes ex ante, to evaluate potential economic gains from policy implementation.

Date: 2019
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