Water Quality Effects of Varying Crop, Fertilizer, and Carbon Prices

Crop and fertilizer prices have increased dramatically in the past few years. These prices, together with existing demand for carbon trading allowances, affect farmers' decisions. It is useful to assess the effect of varying crop, fertilizer and carbon prices on farmers' decisions, and in turn, the effect of these decisions on surface water quality, specifically the nitrate load from the watershed. To achieve the objectives of this study, a mixed integer optimization model incorporating a hydrologic model of a test site is developed. The Salt Creek watershed in East Central Illinois has been selected as the test site for this study. Simulation results indicate that there is a higher tendency for farmers to produce corn in 2007 and 2008 than in previous years. Consequently, the average fertilizer use in that period is relatively high, causing greater levels of nitrate runoff. Results also indicate that at current carbon prices, carbon trading is ineffective in reducing nitrate runoff.