Reducing agricultural nonpoint pollution has been an environmental policy issue since the early 1980s. We discuss the evolution and results of federal and state policy, the contributions of applied economic research to improving the effectiveness and efficiency of water pollution control policies for agriculture, elements of policy reforms that are consistent with the Clean Water Act, and the outlook for needed policy innovation.

Registrant use of computer simulation modeling is generally accepted by regulators in lieu of some experimental data for risk assessment, provided worst-case assumptions and extremely conservative criteria for negligible risk are used. These requirements taken together mean that only extreme cases escape the requirement for actual environmental data. This conservatism reflects the uncertainty in both exposure estimates by the models and in the hazard estimates from toxicologists. Until the credibility of estimated environmental concentrations given by models is improved by more experimental data and experience on the part of both registrants and regulators, the models will continue to be considered not-validated by many. There are four current developments that provide a compromise between the two impossible extremes of total model validation and total field measurement: (1) as models develop more process detail the parameters become more fundamental in nature and these are generally more amenable to independent estimation or measurement; (2) the reporting of probabilistic analyses and probable errors of results by modelers will enhance credibility; (3) the development of data sets for specific crop/site/pesticide/weather scenarios will allow users to modify those parts of the input they are concerned with while retaining confidence that parameters with which they are unfamiliar will have reasonable values; and (4) meso-scale and micro-scale physical simulation experiments can fill the gap between laboratory and field results. The most important need for enhancing model credibility is full access by the pesticide science community to all the information available, so that we may increase our understanding. Legal mechanisms should be considered for longer ownership of exclusive marketing rights of active ingredients, in exchange for complete public disclosure of the environmental fate and toxicology data submitted to regulatory agencies.

Conceptual weaknesses in the use of costs of average abatement as a measure of the cost effectiveness of agricultural nonpoint pollution control are examined. A probabilistic alternative is developed. The focus is on methods for evaluating whole-farm pollution control plans rather than individual practices. As a consequence, the analysis is presented in a chance-constrained activity analysis framework because activity analysis procedures are a practical and well developed device for screening farm plans. Reliability of control is shown to be as important as reduction targets in designing farm plans for pollution control. Furthermore, broad-axe prescriptions of technology in the form of Best Management Practices may perform poorly with respect to cost effectiveness.

When evaluating the economic efficiency of policies to reduce nonpoint source pollution, administrative or transaction costs are usually not taken into account. While the importance of transaction costs has been recognized in the theoretical literature, the fact that they are not incorporated in empirical analyses means that, in effect, these costs are given a zero value. This issue is examined quantitatively using data collected by the National Resource Conservation Service (NRCS). Transaction costs are found to be a significant portion (38 percent) of overall conservation costs. This provides strong support for including these costs in economic evaluations of alternative policy instruments.

There is rapidly growing interest in the use of market-based (MB) instruments in environmental policy. The papers in this session discuss three relatively new areas for such policies: groundwater contamination, nonpoint source surface-water pollution and carbon sequestration. The papers point out the potential for MB policies in these areas, but significant challenges remain. This comment highlights challenges related to five issues: monitoring and enforcement, trading ratios, baselines, transaction costs, and risk and uncertainty. All these issues must be addressed before MB policies can take the full step from economic theory to regulatory reality.

This study evaluates three agricultural nonpoint pollution abatement policies: regulating the spatial pattern of agricultural activities, ambient tax, and abatement tax/subsidy. All three policies incorporate spatial characteristics of agricultural emission loading and movement for an agricultural watershed in the Midwest. The effects of spatial variation in natural conditions and landscape features on agricultural emissions and crop yield are evaluated using a newly developed biophysical simulation model and experimental data. While the policies are equally cost effective in reducing agricultural nonpoint source pollution, their implementation feasibility is quite different.