| The overall objective of this study was the development of a computable general equilibrium model which can be used to analyze the impacts of policies intended to reduce water pollution generated by the agricultural sector. Specifically, the model is capable of simulating the impacts of fertilizer taxes and of programs, such as the Conservation Reserve Program (CRP), which remove from production land that is particularly vulnerable to chemical run-off. Additionally, given the non-market impacts of pollution on water quality, the results of the market oriented CGE are incorporated into a utility framework which includes a measure of the impact of changes in water quality resulting from the imposition of the policies cited above.In order to simulate these types of programs, the model includes characteristics not normally found in general CGE models as follows: (i) Fertilizer is treated as an output or sector in the model, but its use in the production of other outputs is flexible, rather than in fixed proportions, as is normally assumed in CGE models for outputs that are used as production inputs in other sectors. (ii) Land for agricultural production is treated as heterogeneous, to distinguish land that is more vulnerable to run-off from land that is less vulnerable to run-off. The more vulnerable land produces more pollution for a given amount of fertilizer applied, and this land type is eligible for CRP type programs. (iii) Although production of a given commodity on vulnerable land is distinguished from production on less vulnerable land, commodities from both land types are modeled as perfect substitutes for each other with regard to their disposition for consumption, export, or intermediate use:The CGE model that was constructed included nine agricultural production sectors, as well as food, fertilizer, and non-agricultural sectors. Simulations were performed for three policy scenarios: a 5% fertilizer tax, a 5% CRP for vulnerable land, and both policies implemented simultaneously. |
