A Spatially Explicit Hydro-Economic Modeling Procedure to Design Cost-Effective Agri-Environment Schemes for Mitigating Water Pollution from Cropland

Agricultural intensification is a key driver of water pollution in many parts of the world. A frequent policy response is to implement mitigation measures in the context of agri-environmental schemes (AESs). We develop a hydro-economic modeling procedure to design cost-effective AESs to mitigate water pollution from nitrogen and phosphorus from cropland. Our procedure considers spatial heterogeneity of mitigation impacts and of costs of cropland management measures. It further takes into account in the optimization that AES participation is voluntary and farmers who may participate in an AES will select between different cropland management measures. We demonstrate how the procedure works by applying it to the Baishahe watershed in Shanxi Province, China. As a result, we obtain a cost-effective AES with a set of cropland management measures and the associated payment levels that are able to achieve weighted minimized nitrogen and phosphorus loads in the watershed for different budgets. We find, for example, that a cost-effective AES for a budget of 100,000RMB consists of the two measures of implementing a filter strip of 5m and reducing chemical fertilizers by 25% for which the farmers receive payments of 134RMB and 88RMB, respectively, which induces the reduction of nitrogen by 6.9% and phosphorus by 7.8%.