Pay for Performance: Maximizing the Impact of BMP Investments

Agricultural best management practices (BMPs) such as streamside buffer zones and cover crops are increasingly being used to reduce nutrient pollution from fertilizers into water bodies. Eutrophication from fertilizer runoff is the key driver behind growth of hypoxic “dead zones” where fish production comes to a standstill. The extent of these dead zones has increased more than nine fold since 1969 and now encompasses more than 245,000 km2. Continued growth of these marine dead zones undermines global biodiversity conservation goals and poses a significant challenge to meeting the world’s increasing demands for capture fisheries and aquaculture.

Governments heavily subsidize BMPs, but do not generally allocate funds to maximize their environmental benefits. The conventional approach to allocation of subsidies is most often first-come-first-served. But with ever-increasing fiscal constraints, policy makers are searching for ways to enhance efficiency of BMP programs and maximize their bang for the buck.

Pay for performance (PFP) presents an alternative platform based on the level of environmental quality actually achieved on the ground. With respect to agriculture, a PFP program would allocate subsidies for BMPs to those practices that accomplish the maximum amount of nutrient reduction for each dollar invested. PFP programs are applicable not only to BMPs that reduce nutrients, but to any subsidy program designed to achieve environmental quality outcomes including emerging payments for ecosystem services markets. In a new paper published in the journal Ecological Economics, CSE’s John Talberth and researchers from the World Resource Institute compared a conventional subsidy approach with PFP for BMPs designed to reduce nutrient pollution into the Chesapeake Bay.

We model four paired scenarios using a constrained optimization model. In the first pairing we held the level of nutrient reduction constant and compared cost effectiveness of the two subsidy allocation methods. In the second pairing we held the level of program investment constant and compared nutrient reduction outcomes. In both pairings, PFP was far superior – delivering identical nutrient reduction outcomes at less than half the cost in the first and delivering two to three times the amount of nutrient reduction for the same budget allocation in the second. CSE is now seeking partnerships with federal, state, and local governments as well as non-profits to investigate the feasibility of PFP for a wide range of programs that provide public financial support for sustainable land management practices.

To download the PFP publication, click here.

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