An index approach to performance-based payments for water quality

Area of Science:

• Environmental Science
• Agricultural Economics
• Water Resource Management

Background:

• Nitrate runoff from agricultural lands is a significant water quality concern.
• Traditional conservation programs often rely on proxies for water quality, which can be inaccurate.
• Economic incentives offer a potential mechanism to encourage farmer participation in water quality improvement efforts.

Purpose of the Study:

• To describe a novel field research project using economic incentives for farmers to control nitrate runoff.
• To evaluate a payment system based on ambient water quality and quantity, relative to a control watershed.
• To assess the effectiveness of group-based payments in promoting farmer participation and nitrate abatement.

Main Methods:

• Developed a modeling approach to estimate water prices and payment levels for farmers.
• Implemented a payment system based on actual watershed water quality and quantity, accounting for natural variations.
• Compared preliminary payment estimates with actual fieldwork data over 33 months.

Main Results:

• Actual payments were 29% lower than preliminary estimates, partly due to model inaccuracies in discharge prediction.
• The program successfully recruited 53% of farmers in the target watershed.
• Significant nitrate abatement activities were observed among participating farmers.

Conclusions:

• Group-level, performance-based payments linked to ambient water quality are a viable strategy for nitrate runoff control.
• Further research should focus on field trials of such low-risk, group-based incentive programs.
• Addressing model accuracy for water discharge is crucial for refining payment estimations in future programs.