Incentivising farmers to reduce water pollution

A payment scheme rewarding farmers for high water quality outcomes within their catchments should be established, researchers at the Economic and Social Research Institute (ESRI) have recommended.

The research paper, published by the ESRI in July 2024, outlines a proposal for future agri-environment schemes to achieve good water quality status.

Authored by Wellington Osawe, John Curtis, and Cathal O’Donoghue of the ESRI, the research envisages payments to farmers within a catchment proportional to water quality outcomes within said catchment.

To facilitate this, environmental monitoring would be expanded to produce assessment reports for each catchment on an annual basis so that scheme payments reflect the most recent performance and facilitate flexibility in farming practices.

With a scheme that focuses on whole-of-catchment and payments based on catchment water quality, all agricultural land within a catchment would be covered by the scheme. As such, all farmers within a catchment would share the results-based payment.

Rather than national limits, the ESRI recommends that all catchments should have bespoke nitrate and phosphate limits based on catchment assimilative capacity, i.e., catchment nitrates quotas. Trading quotas between farmers within catchments would facilitate the development of the most efficient or intensive farms without impinging on water quality.

The proposed scheme ultimately envisages payments to farmers within a catchment, proportional to water quality outcomes. As there would be a time lag before improvements in water quality are observable, payment could comprise three elements in a transition phase.

One element of the payment would be for water quality outcomes, a second element would cover costs related to modifying farming practices to transition to a lower nitrates operation, and a final element would encompass the more traditional input-based payment such as, for example, tree planting and field margins.

Five key attributes

The researchers outline a framework comprising five key attributes that should be inherent to future agri-environment schemes. They are:

1. Results-based incentives: Payments for agri-environment services delivered by farmers should be results-based. Such an approach would align farmers’ incentives with scheme objectives. Historically, many schemes have compensated farmers for the provision of inputs such as tree planting rather than for environmental improvements such as water quality.
2. Area-based payments: Good environmental outcomes need to be delivered at scale, which means that good agricultural practice needs to occur across farms and catchments to enable a step-change in environmental outcomes. Consequentially, financial incentives would be implemented on a per-hectare basis where applicable to encourage participation.
3. Catchment-based: Environmental outcomes within water catchments depend on all activities occurring within the catchment, not just single farms. Therefore, agri-environment scheme outcomes would be assessed at the catchment level in the case of water quality and not on a farm-by-farm basis. This approach ensures that environmental monitoring, outcomes, and agri-environment schemes align.
4. Simplicity: Rule books for agri-environment schemes are long and complex. A results-based scheme would facilitate a simpler rule book and less administration. If payment is ultimately based on environmental outcomes, how the outcomes are achieved is not pertinent, assuming no other adverse environmental externalities.
5. Flexibility: Historically, rule books for agri-environmental schemes were fixed and did not allow much flexibility. The ESRI believes that such schemes should be as adaptable as possible to changing conditions and knowledge such that they continue to incentivise participants to achieve the best environmental outcomes.

Agriculture sector’s contribution to water quality challenges

In the Environmental Protection Agency (EPA) Water Quality in Ireland 2023 report, published in June 2024, the EPA asserts that increased concentrations of nutrients, such as phosphorus and nitrogen, are impacting water quality and the biological health of water bodies.

“Human activities, such as agriculture, wastewater (domestic and urban), and forestry, are the primary cause of nutrient loss to our waters,” the EPA states.

The water quality report shows that longstanding water quality challenges persist, with 42 per cent of river sites nationally demonstrating unsatisfactory nitrate concentrations (above 8mg/l NO3). These elevations of nitrate levels primarily derive from agriculture through chemical and organic (manures and urine from livestock) fertilisers or from direct discharges from waste water.

In its conclusion, the EPA states that, as the main source of nitrogen in waterways is agriculture and the main source of phosphorus is agriculture and wastewater, these sectors must do more to reduce nutrient losses to water.

‘Radical departure from current practice’

Concluding, the ESRI researchers assert that, in some respects, the framework for agri-environment schemes proposed here is an “incremental evolution of previous schemes”. However, they also state that, in other respects, the proposals represent a “radical departure from current practice,” moving away from a largely inputs-focused farm-holding level scheme to one with a focus on catchment-level outcomes.