Economic and Environmental Evaluation of Nitrogen Fertilizer Taxation: A Review

Nitrogen fertilizers is an essential input into modern agriculture, however the use of large amounts of this mineral fertilizers caused in the last three decades enormous environmental impacts such as eutrophication of waters and soils, loss of biodiversity, drinking water pollution and human health risks. The agri-environmental policy plays a crucial role to internalize pollution externalities from agriculture production and ensuring food production and food price remain affordable even to those with lowest income. To date, regulatory instruments, such as the Nitrate Directive in EU applied to reduce and manage nitrogen pollution run-off showed scarce results in terms of environmental protection and in many countries such as Ireland and Spain created evident loss of incomes and impose high costs on small to medium farmers to respect nitrogen fertilizers limits. Meanwhile in other countries economic instruments such as nitrogen taxation reach better results in terms of agriculture emissions reductions and environmental impacts due to their flexibility. This review aims to document the current state of the knowledge of nitrogen taxation and gather experience from other countries for reducing nitrogen emissions assessing their effects on farmers' income productivity, food price stability and environmental outcomes.