An Economic Evaluation of the Effect of Nitrous Oxide Emissions Pricing on Crop Farmers in Saskatchewan

Abstract

The Federal Greenhouse Pollution Pricing Act was implemented in Saskatchewan on April 1, 2019 starting at $20 CAD per tonne of carbon dioxide equivalent (CO2e), increasing by $10 CAD every year through 2022. The goal of this policy is to reduce GHG emissions by 50-60 million tonnes by 2020. Despite contributing 10% of nationwide emissions, the agricultural industry is mostly exempt from the policy. To enhance policy efficiency, I consider a policy alternative that covers nitrous oxide emissions from nitrogen fertilizer. I examine the effect of both the Federal policy and the optimal Pigouvian tax on Saskatchewan crop farmers’ use of nitrogen fertilizer in this hypothetical scenario. The estimated Pigouvian tax for nitrogen fertilizer use is approximately $268 CAD per tonne of fertilizer nitrogen. I find a 5% and 9% reduction in nitrogen fertilizer use under the Federal policy and the Pigouvian tax, respectively.