Additionality in Payments for Environmental Service Contracts with Technology Diffusion
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Voluntary incentive payments, also known green subsidies are a popular method to incentivize farmers into adopting environmentally friendly practices. The United States Department of Agriculture’s (USDA) latest budget directs over 4.5 billion dollars toward programs like the Conservation Reserve Program (CRP), the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CStP) and plans to have 380 million acres enrolled in these programs in 2016. The prominence of these programs mean both conservationists and taxpayers have a serious stake in their effectiveness. One concern with these programs is that they may provide little additional environmental benefits relative to what would have occurred in the absence of the program. This paper performs a discrete dynamic optimization simulation to study additionality in a dynamic environment. This allows us to directly study moral hazard as it relates to non-additionality and even delayed adoption from green payment programs. We show that larger programs do not necessarily generate more additionality and that especially poor policies can slow green practice diffusion.