What Is the Impact On Farmer Nitrogen Fertilizer Use of Incorporating the Effects of Nitrous Oxide Emissions?.

The use of fertilizer continues to be important for crop production, but increased focus on nitrous oxide as a greenhouse gas has added potential new considerations to farm-level fertilizer decisions. We present an economic decision framework which includes agricultural and environmental dimensions with particular focus on greenhouse gas emission of nitrous oxide and provides important policy information for the proposed Carbon Pollution Reduction Scheme in Australia. Such a Scheme will put a cap on carbon emissions and introduce emissions trading. This will raise the price of fertilizer, but what is the likely farm-level response to such an increase? The economic decision framework, based on simulated responses of crop yield and emission of nitrous oxide to added nitrogen by process based agro-ecosystem model of WNMM, can be used to develop the ‘best’ fertilizer decision from both agricultural and environmental viewpoints. The framework develops the marginal revenue for different crop fertilizer decisions which can be interpreted as the willingness to pay for fertilizer by the producer, or as the input demand. Input demand is shown to be relatively inelastic; an increase in fertilizer price is likely to have a proportionally-lower decrease in fertilizer applied. When the effects of nitrous oxide emissions are included and costed at $25/tonne of carbon dioxide equivalent the reduction in application is still small. We illustrate with three case studies from different Australian regions.