Counterfactual approach for assessing agri-environmental policy: The case of the Finnish water protection policy
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This paper applies counterfactual approach to assess the impacts of agri-environmental
programs. Counterfactual analysis evaluates policies answering questions: what would have
happened if...? We develop a theoretical framework for counterfactual analysis based on the
inter-linkages between the behaviour of agents and the response of environmental systems to the
economic decisions. We apply our model to assess the performance of the Finnish Agri-
Environmental Programme to reduce agricultural nutrient runoff to the Baltic Sea.
Counterfactual analysis allows us to determine both the unit effectiveness of the measures
included in the Programme and its preventive impact. We demonstrate that the Finnish Agri-
Environmental Programme does not achieve its goals, because it fails to anticipate farmers’
responses to incentives created by the Common Agricultural Policy and the Agri-Environmental
Programme itself. The social cost-benefit analysis of the Program shows negative net benefits:
benefits from reduced nutrient loading are much lower than support payments.