Market-Based Incentives for Addressing Non-Point Water Quality Problems: A Residual Nitrogen Tax Approach

Abstract

This study analyzes the implications of a nitrogen tax for agricultural producers. A tax scheme is examined that penalizes farmers for applying nitrogen in excess of a crop's nitrogen uptake. Farmers are taxed for the potential leaching of residual nitrogen into groundwater and are rewarded for growing crops that capture and utilize residual soil nitrogen. Corn production is used to illustrate the differential impacts of a residual nitrogen tax on farm income in Corn Belt States.