Effectiveness Of Markets In Nitrogen Abatement: A Danish Case Study

Degradation of water ecosystem caused by excessive loads of nutrient from agricultural sources continues to be a problem in many countries. Targeted regulation has been suggested for implementation of nitrogen (N) abatement measures to achieve N reductions. Achieving cost-efficient implementation of N abatement actions may depend on farmers’ response to the suggested policy. In this paper we present a method for analysing farmers’ likelihood of engaging in N abatement trading contracts. By use of a hypothetical market experiment we derive the demand and supply functions for Danish farmers. Our findings suggests, that farm and farmer characteristics influence, not only the decision whether to participate or not and whether to supply or sell N abatement, but also on the amounts to be traded. We conclude that introducing trade as an N abatement policy measure involves challenges due to the spatial specificity of the abatement targets leading to small markets and lack of heterogeneity. The results can be used to support the design of policy incentives used to address nutrient reductions