The Dutch nitrogen crisis

The Netherlands is one of the highest (per capita) GHG emitters in the EU. It is also responsible for a lot of local pollution, mostly due to its intense agricultural production (mostly meat and dairy, mostly for export).

The government has promised to improve its pollution record, but it’s often tried to avoid action.

Now the country is in a “stikstof (nitrogen) crisis” in which nitrogen emissions (a local pollution) need to be reduced by 50-70 percent by 2030.

From what I’ve heard (correct me if I’m wrong), the government is focussing on identifying and closing farms (responsible for most of the domestic nitrogen emissions), and this “plan” is attracting a lot of opposition. Just imagine thousands of angry farmers.

This method of “efficiently” finding/closing farms is neither politically nor economically efficient, as bureaucrats will have to pay a lot if “targeted” farmers don’t want to shut down. The bureaucrats will also be unpopular for “attacking” certain farms.

What the government should do instead is set up a “cap (and reduce) and trade” system where all large farms get a certain number of “rights” (say 1000 in total) and a schedule of “eroding” those rights by 50% by 2030.

Such a system will allow farmers to decide if they want to stay in business (buying rights), close down (selling rights) or change their methods (relieving them of the need to have rights to operate).

My one-handed conclusion is that bureaucrats never know more than farmers on either how to farm or who should retire.

Use market incentives. Farmers already do!

 

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Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

4 thoughts on “The Dutch nitrogen crisis”

  1. Two complications: (1) It is not just farmers who emit large quantities of nitrogen, it also includes construction work (relevant for the current housing crisis!) and driving. So policy makers would need to set a national cap for all industries and create a nation wide market in which people from all these sectors of the economy trade with each other (which would work fine for construction companies, but it seems hard to imagine commuters buying their daily nitrogen emission rights before going to work). And (2) the nitrogen levels specified by the law are _local_ levels. E.g. close to national parks, regulations are stricter. So nitrogen markets either need to be local with different caps in different localities (in which case the markets would be thin), or include a more complex pricing structure in which prices reflect that a farmer close to a national park is doing more damage than a farmer next to a highway.

    It seems that bureaucrats doing complicated calculations is pretty much inevitable, although it might be preferred to have them design a complicated auction rather than deciding on which farmer to nudge into retirement.

    1. Thanks for the comment! On (1), consider [from the wiki link I give] “De grootste bronnen van stikstofneerslag voor Nederland in 2018 zijn respectievelijk de landbouw (46%, NH3 uitstoot)), het buitenland (32% (NOx en NH3 uitstoot)) en het wegverkeer (6% (NOx uitstoot)); verder het openbaar vervoer, scheepvaart en luchtvaart voor zo’n 1,6% (NOx uitstoot), waarbij de luchtvaart 0,1% bijdraagt.” So farming is 46% and traffic/transport 7.6%. Construction is a big GHG emitter but perhaps not N2 emitter, as it’s not mentioned by name (maybe it’s in transport?). Looking ONLY at “binnenland” sources, farms are (46/68) — 68% of the total in NL. The cap and trade for drivers would be sorted (as with gasoline taxes) at the pump.

      On (2), you’re right. A “local damage function” could require more permits for activities close to sensitive locations, which may end up making the farms unprofitable, but I prefer the farmer to make that decision.

  2. Did not know that! Would have thought it was higher. But construction still matters on the margin. It is still harder for construction projects to get underway because of their nitrogen impact. See e.g. https://www.ad.nl/wonen/stikstofprobleem-gijzelt-woningbouw-huizentekort-loopt-verder-op~af92623f/.

    And while googling, I found that there actually is a nitrogen market! At the local level! So for example, on this website you can see some of the current supply in certain municipalities (although no prices): https://www.stikstofmarkt.nl/aanbod. This raises the question why the market is not effective enough to actually get enough people to quit, which I guess boils down to an oversupply of permits. And rent seeking/fraud, cursory googling does find a bunch of complaints about “ghost farms” (e.g. ones that have been out of use for years) being used to claim permits, increasing supply and thus keeping prices relatively low.

    1. Agreed on construction at the margin — especially when the government stops it (I think this was a bit of a strong reaction to the court order, but perhaps an attempt to create pressure for a solution involving farmers). “When the problem is not solved locally, I make it bigger!” said one politician.

      Interesting that there’s a market. You’re probably right about ghost farms (and maybe too many permits). My guess is that the market would need a push (=government mandate to use it), but the government seems more interested in command and control 🙁

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