The benefits from green payments for the adoption of a conservation technology or practice are reduced if the technology would have eventually been adopted regardless of the green payment. This source of additionality is likely a significant concern for some technologies subsidized by EQIP.Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies,

Hendricks, Nathan P.

English

Research Papers in Economics

 
 
 
The Effect of Green Payments on the Diffusion 
of Conservation Technologies 
 
 
 
 
 
 
 
Nathan P. Hendricks 
 
Department of Agricultural & Resource Economics 
University of California, Davis 
 
 
 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association 2010 
AAEA, CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 25-27, 2010 
 
 
 
 
 
 
 
 
 
 
 
Copyright 2010 by Nathan P. Hendricks. All rights reserved. Readers may make verbatim 
copies of this document for non-commercial purposes by any means, provided that this 
copyright notice appears on all such copies. The Effect of Green Payments on the Diffusion
of Conservation Technologies
Nathan P. Hendricks
University of California, Davis
Main Point
The benefits from green payments for the adoption of  a 
conservation technology or practice are reduced if the 
technology would have eventually been adopted regardless 
of the green payment. This source of additionality is likely a 
significant concern for some technologies subsidized by 
EQIP.
Paying more 
than 
willingness to 
accept
3
Additionality
“Additional” benefits 
are only realized if 
adoption would not 
have occurred without 
the payment.
Potential Problems with Green 
Payment Programs
Slippage or Leakage
The program causes land 
use to change which 
reduces the benefits. 
In these graphs I illustrate the results of my analytical model, which is described 
in the diagram to the left. The graphs are for illustrative purposes only; the 
parameter values do not pertain to any particular technology or subsidy 
program. 
In the three graphs above I show the effect of a cost-share subsidy on 
technology diffusion under three different diffusion scenarios. In the first 
scenario the diffusion process leads to all firms adopting the conservation 
technology. In this case, the subsidy merely reduces the time to adoption of the 
technology. The additional benefits of the subsidy are proportional to the area 
under the red curve and above the gold curve. The benefits of the program are 
overestimated if it is assumed that the technology would not have been 
adopted without the subsidy.
The second and third graphs show the effect of the subsidy if the diffusion only 
leads to partial adoption of the technology. The vertical distance between the 
diffusion curves is proportional to the density of marginal adopters. In my 
example, the vertical distance between the curves increases through the last 
period if total adoption without the subsidy is less than about fifty percent. 
References
[1] Jaffe, A.B., and R.N. Stavins. 1995. “Dynamic Incentives of Environmental Regulations: The 
Effects of Alternative Policy Instruments on Technology Diffusion.” Journal of Environmental 
Economics and Management 29(3):43-63.
[2] Khanna, M., M. Isik, and D. Zilberman. 2002. “Cost-Effectiveness of Alternative Green Payment 
Policies for Conservation Technology Adoption with Heterogeneous Land Quality.” Agricultural 
Economics 27(2):157-174.
[3] Kurkalova, L., C. Kling, and J. Zhao. 2006. “Green Subsidies in Agriculture: Estimating the 
Adoption Costs of Conservation Tillage from Observed Behavior.” Canadian Journal of 
Agricultural Economics 54(2):247-267.
[4] Natural Resources Conservation Service. 2003. “Environmental Quality Incentives Program 
Benefit Cost Analysis.” Available at: 
http://www.nrcs.usda.gov/programs/Env_Assess/EQIP/EQIP_EA_finals/FINAL_BC_Analysis.pdf
[5] Wu, J. 2000. “Slippage Effects of the Conservation Reserve Program.” American Journal of 
Agricultural Economics 82(4):979-992.
Model
Previous Literature
No-till and EQIP
Source: Aggregate no-till adoption data obtained from CTIC 
(Conservation Technology Information Center) and EQIP 
subsidy data obtained from NRCS.4
The two graphs above illustrate the effect of a subsidy program that specifies a 
cost-share subsidy rate and a total budget for the program. I fix a budget 
constraint and then specify a “small” and “large” cost-share rate in each graph. 
If a sufficiently high cost-share rate is specified, then the budget is constraining. 
The diffusion curve is convex while the budget is constraining because the fixed 
cost is decreasing over time. There is a tradeoff when specifying a subsidy rate 
given an allocated budget. A larger cost-share rate makes the budget more 
constraining and may actually lead to less adoption in the early periods, but in 
the end will lead to greater adoption of the technology, if the technology is not 
fully adopted without a subsidy. 
In the case where a larger cost-share rate leads to greater adoption in early 
periods (such as the right graph), it is important to note that more money is 
spent with the larger cost-share rate. The preferred cost-share rate will depend 
importantly on the discounting of environmental benefits in the future.
Cost-Share Subsidy with Budget Constraint
Fixed cost of adopting 
conservation tech 
decreasing at 
decreasing rate over 
time
Firms currently use 
traditional technology
Firm chooses time to 
adopt conservation tech 
to max profit
1
Distribution of firm 
heterogeneity
Cost-share subsidy for 
fixed cost of adoption
Diffusion of 
conservation 
technology
Reducing 
time to 
adoption Paying those 
who have 
already 
adopted
3
Output price 
feedbacks
5
Payment 
increases 
profitability of 
marginal 
land
2
The source of additionality identified in my model is likely a concern for any 
technology whose adoption is increasing over time.  The Environmental Quality 
Incentives Program (EQIP) in the U.S. offers cost-share subsidies to farmers to adopt 
a number of different conservation technologies or practices. EQIP requires that 
farmers have not already implemented the practice, but this does not eliminate the 
additionality concern. 
In the graph to the right I show that the increase in the number of  no-till acres far 
exceeded the number of acres which received EQIP subsidies from 1997 to 2001. 
Given that so many farmers adopted no-till without any subsidy, one must wonder 
how long it would have been until farmers who received the subsidy would have 
adopted no-till anyway? Do the environmental benefits from the additional years of 
adoption exceed the costs of the program?
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[4] Natural Resources Conservation Service.

The Effect of Green Payments on the Diffusion of Conservation Technologies

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