This study links a spatially-explicit biophysical model (SWAT) with an economic model (INVeST) to identify the economically optimum allocation of conservation practices on the landscape in order to reduce losses of sediment from the watershed. Conservation practices included conservation tillage versus plantings of perennial biofuel crops such as switchgrass or prairie grass.  Combining biophysical and economic analysis allows assessment of the benefits and costs of alternative policy choices through consideration of either direct costs and benefits as measured by market transactions, or  non-market benefits and costs involving changes in the provision of ecosystem services (water quality, carbon sequestration, habitat). When applied to an agricultural watershed located in South-Central Minnesota, this approach showed that: (1) some modest gains (20% improvement, relative to baseline conditions) in sediment loading can be achieved without diminishing current economic returns, but that (2) more dramatic reductions in sediment required to meet water quality goals (50-80% reductions) will require transitioning land from row crops into perennial vegetation. This shift in land cover will be accompanied by a reduction in economic returns unless non-market ecosystem services are also valued. Results showed that traditional best management practices such as conservation tillage are not sufficient to achieve water quality goals by themselves. Finally, plantings of perennial biofuel crops have both direct and indirect effects on sediment loadings, with the indirect effects arising from increased evapotranspiration and reduced stream discharge.

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