Project details

Economic instruments for nitrogen control in European agriculture – NITROTAX

The main objective of this study is to investigate the technical, environmental, economic and social consequences of economic systems to control the use of nitrogen and to identify systems that can be implemented regionally, nationally or internationally within an EU context. Not all farmers use nitrogen in an economically optimal way. Part of the farmers can reduce the nitrogen use (in fertiliser or feed) substantially even with economic gains. Excessive nitrogen fertilisers are applied because the consequence of insufficient nitrogen use (reduced yields) is financially more painful than the consequence of excessive nitrogen (use) (wasted resource). Economic instruments will change the ‘environment’ of the farmer.

Economic instruments are a means of changing the price relations between inputs and outputs so that there would be decreased nitrogen loss. As a reaction, farmers are likely to increase the efficiency of nitrogen use and/or lower the use of nitrogen. How do levies or permits affect current sub-optimal use? At least risk-avoiding behaviour (with excessive use) is punished harder than without levies or permits. Thus, farmers are galvanized to aim for the economic optimum to a greater degree. In this study, two farm economic models have been used: the German MSBB model and the Norwegian EcEcMOD. The German MSBB model has been used for showing the effects of economic instruments on a broad range of farms. Twelve ‘model’ farms have been included, different farm types under various regional conditions. The changes in fertiliser use and nitrogen surplus have been used to show the effectiveness.

In the study, it is pointed out that – while regulations, and information and extension are the instruments that are most commonly used to influence farmers’ decisions with regard to nitrogen – it is the economic instruments that have significant advantages over those instruments. Economic instruments directly address market failure (internalisation of external costs); they encourage cost-efficient solutions and they are – generally speaking – easier to implement. A low fertiliser levy can function as a revenue raiser for financing activities that are specifically aimed at improving nitrogen use efficiency and clean-up activities. The revenues can be used for monitoring, research, advice and subsidies for measures that reduce nitrogen losses and e.g. for purification of ground water for drinking water purposes. In livestock-dense areas it may be necessary to stimulate research on manure storage and treatment. In that case an additional levy on (nitrogen in) purchased concentrate feed or manure surplus at the farm level can be considered. Regulations on the other hand are clear and relatively straightforward for the policy maker as well as the farmer. They can be effective if well adapted to the particular site conditions, farm structural situation and production patterns. It is concluded that in most cases a policy mix is needed. Policy mixes will be different in different countries. The policy maker has to take into account the environmental problems, the farmer, but also other policies and administrative traditions. Policy measures derived from the Nitrate Directive are an important part of the optimal policy mix.

Project no.: 



Research | Agricultural policy |


European Commission, Directorate-General for Research



Contact person/s at IfLS: 

Jörg Schramek