There is growing interest in green payments subsidizing conservation measures on working farmland based on the premise that they have positive effects on the environment and agriculture simultaneously without causing international trade distortions. This paper uses a Ricardian land market equilibrium model to examine the impacts of green payments. The analysis shows green payments can worsen ambient pollution damage by subsidizing the expansion of more intensive crop cultivation. Some forms of green can increase cultivation intensity (and thus environmental damage) as well. These adverse effects can be avoided by careful targeting, but such targeting is likely to be quite difficult.

A proposed Yield Reserve Program designed to compensate farmers for any reduced yields resulting from nitrogen (N) application rates reduced to below recommended rates is evaluated. Assuming that farmers currently follow Extension recommendations for applying N, Yield Reserve Program participation reduces expected net revenue by $10 to $13/ha. The Yield Reserve Program reduces expected net revenue by $17 to $20/ha for farmers who apply N to maximize expected net revenue. Farmers' costs of participation increase with lower probabilities of inadequate rainfall and higher corn prices and decline with higher N prices. The Yield Reserve Program can significantly reduce N applications to cropland, which may reduce N content of surface waters, but the costs to taxpayers and farmers will depend on how the program is implemented.

Agricultural agencies have long offered agri-environmental payments that are inadequate to achieve water quality goals, and many state water quality agencies are considering point-nonpoint trading to achieve the needed pollution reductions. This analysis considers both targeted and nontargeted agri-environmental payment schemes, along with a trading program which is not spatially targeted. The degree of improved performance among these policies is found to depend on whether the programs are coordinated or not, whether double-dipping (i.e., when farmers are paid twice—once by each program—to undertake particular pollution control actions) is allowed, and whether the agri-environmental payments are targeted. Under coordination, efficiency gains only occur with double-dipping, so that both programs jointly influence farmers’ marginal decisions. Without coordination, double-dipping may increase or decrease efficiency, depending on how the agri-environmental policy is targeted. Finally, double-dipping may not solely benefit farmers, but can result in a transfer of agricultural subsidies to point sources.

The effects of cropland slope, distance to surface water, farmers' risk attitudes, and farmers' nitrogen (N) fertilizer applications on potential N delivery to streams and costs of reducing N delivery were evaluated for a representative Virginia peanut-cotton farm. Target MOTAD and generalized stochastic dominance were used to select preferred plans for different levels of risk aversion. Costs of reducing N delivery were lower on farms where fields were located close to surface water, where N was overapplied relative to extension fertilizer recommendations, and where the operator was risk averse. Cropland slope had less effect on cost of reducing N delivery relative to other factors.