A Deposit-Refund System Applied to Nitrogen Emissions from Agriculture

The purpose of this paper is to describe a nitrogen based deposit-refund system for regulating non-point nitrogen emissions from agriculture. We develop a formal model of a polluting production sector with substance content of inputs and outputs as an explicit quality dimension. Within this framework two input-output based tax schemes for regulation of agricultural nitrogen emissions are compared while taking regulator monitoring costs into account. Incentive regulation of nitrogen emissions from Danish agriculture is discussed in this light. It is concluded that a nitrogen based deposit-refund system seems a logical focal point of analysis for a policymaker considering introduction of incentive regulation of non-point nitrogen emissions from agriculture.