2024, Volume 27, Paper 10
ISSN: 2209-6612

Turning a Negative into a Positive: What to do about Negative Externalities from Nitrogen Used in Farming?

Bill Malcolm – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville

Chinthani Rathnayakea  – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville

Garry Griffith – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville

Alex Sinnett – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville

Paul Deane – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville

Abstract

Much of the nitrogen fertiliser that farmers use to grow crops and pasture is not used by these plants but is lost to the environment, causing negative externalities such as nitrous oxide contributing to stocks of global greenhouse gases, and nitrate and ammonium polluting water and air. These externalities have large external costs. Much of the discussion of how to minimise these costs has focused on government policy actions such as quantitative regulations about use, and the implementation of taxes and subsidies, or cap and trade models. In this paper an alternative approach is outlined based on the theory of club goods and actions jointly with the private sector rather than solely by the public sector. A proposal for a public subsidy to fertiliser producers to cover the cost of precoating fertiliser products like urea, to reduce the cost of reduced-emission nitrogen fertiliser products, and to make treated nitrogen fertiliser products available to farmers at a similar cost to untreated nitrogen fertiliser products, is assessed against this approach.

Key words: nitrogen, negative externalities, external costs, policy options, club good solutions

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