Water Quality, Nonpoint Source Pollution, and EQIP

The Environmental Quality Incentive Program

By Brent Sohngen and Jon Rausch

In recent years, government agencies, including the U.S. Department of Agriculture and the U.S. Environmental Protection Agency, Congress, Ohio State University Extension, and farmers have paid more attention to environmental issues associated with agriculture. While most heavy industry in the United States must comply with environmental standards and regulations, a distinctly different tack has been taken with farming. The economic incentive, or cost-share, has arisen as the policy of choice for that industry.

This article discusses the evolution of water quality regulation and incentive programs in U.S. environmental policy. Such a historical perspective helps us better understand the incentive program in relation to other mechanisms that could be used to reduce environmental pollutants. The article then details one particular program introduced in the 1996 Farm Bill--the Environmental Quality Incentive Program, or EQIP. EQIP is first described in general, but since it has already provided cost-share assistance to farmers in Ohio, we are able to assess the 1997 funding cycle. The implications of this analysis may provide some insight to farmers who are thinking of using EQIP in 1998 or in the future.

Clean Water and Agriculture

The words "clean water" evoke many different images. Over time, our federal and state governments have interpreted the terms differently as well. In 1899, for example, the Refuse Act was adopted to provide for safe navigation in commercial waters. At the time, the main concern was that industrial sewage, sludge, and other material blocked river channels and impeded navigation. By 1948, however, the definition had changed a bit, as it was recognized that contamination from nutrients and heavy metals was affecting human health, and the Water Pollution Control Act was signed. Rather than implementing the types of standards with which we are familiar, this law focused on research into the causes of water pollution. It also authorized the first federal incentives for municipal waste water treatment facilities to upgrade their pollution abatement technology--a practice that continues today.

The Federal Water Pollution Control Act of 1972 is generally regarded as the beginning of modern water quality regulation. This law set national standards for water quality (they were previously set by states individually), and the federal government assumed responsibility for monitoring and enforcing these standards. Although this law continues to provide the base for current water pollution regulation, several changes have occurred since 1972, including the extension of deadlines for meeting water quality standards. The legacy of this law is a set of regulations that focus heavily on enforcing strict pollution loading standards on point sources. Point sources are polluters who discharge effluents directly into the water through discharge pipes, i.e., industrial plants and municipal waste water treatment facilities.

The question remains, has the estimated $4 billion that municipal wastewater treatment facilities have spent in Ohio to upgrade their systems since 1972 (Rankin et al.) been cost-effective? Federal and state environmental authorities (the Environmental Protection Agency, EPA, and the Ohio Department of Natural Resources, ODNR, for example) would argue yes. To measure changes in water quality, the EPA has developed a set of "use" criteria for each water body. Standards based on tests of the physical properties of water are then set for each use. Progress is measured by sampling streams periodically for these physical properties, and placing streams in one of three categories: (1) Full attainment; (2) Partial attainment; and (3) Non-attainment. By 1996, nearly 50 percent of Ohio streams were fully attaining their standards of use, compared to only 34 percent in the 1970s and 1980s (Rankin et al., 1996). The Ohio EPA has set a goal of achieving full attainment on 75 percent of Ohio streams by the year 2000.

The EPA attributes most improvements in water quality to the strict regulations on point sources. As wastewater treatment plants, industrial plants, and other point sources have met required reductions in pollution loading, however, nonpoint sources have become more noticeable. Nonpoint sources include agriculture, development, construction, and other sources that cannot be pinpointed to a particular pipe or discharge point. For this reason, the focus of water pollution control has shifted to nonpoint sources. Although regulations will continue on point sources, a consensus has developed among environmental agencies that future increases in water quality are most likely to be achieved by reducing nonpoint pollution discharges.

More importantly, the U.S. and Ohio EPA suggest that agriculture is a leading source of nonpoint pollution (Rankin et al.). Given the suspected role of agriculture, we can see why the U.S. Department of Agriculture (USDA) has been busy developing agricultural pollution reduction programs, such as the Environmental Quality Incentive Program (EQIP). The number of policy options available to EPA and USDA actually is quite large, ranging from strict regulations on agricultural practices (i.e., enforcing best management practices), to higher taxes on inputs such as nitrogen and phosphorous, to the types of incentive programs that are gaining acceptance today. For the time being, federal and state governments seem content to see how incentive programs will work to ameliorate remaining water quality problems.

Incentives, after all, are a fairly well established policy within the context of water quality. The Water Pollution Control Act of 1948 introduced the concept of incentives to water quality by authorizing loans to municipalities to install new sewage treatment equipment. Since 1991, section 319 of the Clean Water Act has provided similar incentives for nonpoint sources in selected watersheds around the United States. For information on other incentive programs available to Ohio farmers see Ohio State University Extension Fact Sheet AE-1-97, "Incentive Programs for Improving Environmental Quality" by Jon Rausch and Brent Sohngen.

The Environmental Quality Incentive Program in Ohio

EQIP was authorized as part of the 1996 Farm Bill to provide technical, financial, and educational assistance to agricultural producers who install practices that may reduce their pollution output. Although the federal program attempts to target resources to specific environmental concerns, such as animal waste, EQIP legislation allows states wide latitude in implementation. In Ohio, the Natural Resource Conservation Service (NRCS) has chosen to target environmental concerns by focusing EQIP funds on three specific competitions. In 1997, NRCS allocated two-thirds of the funds to projects in specific conservation priority areas (the dark areas in Figure 1), where the main environmental concerns are livestock waste and water quality. The remaining one-third of the funds will be used for projects that target soil erosion and other environmental issues in the rest of the state. Producers from any part of the state can ask for funds from the statewide competition, even if they are in conservation priority areas.

Environmental priorities and goals in each competition vary. In the priority areas, goals are determined by local work groups. In the statewide competition, they are determined by the State Technical Committee. These two entities, made up of government and industry representatives, are convened by NRCS to help develop policy related to agricultural conservation programs. The remainder of this article explores the decision process and the results from the first year of funding for the statewide and priority area competitions. For more in-depth information on the EQIP program, see OSU Extension Fact Sheet AE-2-97, "The Environmental Quality Incentive Program: EQIP" by Jon Rausch, Brent Sohngen, and Eric Norland.

Funding decisions for EQIP (in all three competitions) are based on what is known as an "offer index." The offer index is calculated as the requested cost share dollars divided by the environmental ranking points:

To calculate the offer index, producers must decide which projects to initiate, and how much cost-share to request. For example, suppose a producer decides to install a new agricultural waste system for a confined livestock operation. If they are considering using cost-share assistance from EQIP, they should consult their local NRCS field staff for technical assistance and look at the scoresheet that determines environmental ranking points. This will help them tailor a project that will have the best chance of succeeding. The producer then must determine the total cost of the new system, and how much cost-share assistance to request from EQIP. EQIP generally will not cost share more than 75 percent of a project's total cost, more than $10,000 per year, or more than $50,000 over the life of the project. Local NRCS field staff will then assess the farmer's project using a predetermined ranking system that assigns points to environmental benefits. The total number of points the farmer gains and the total cost share that he or she requests are used to determine the offer index in the formula above. NRCS then ranks proposals from the lowest offer index to the highest. Proposals with the lowest offer indices are funded to the point where funds are exhausted.

Producers must be aware that the scoring system for the environmental ranking points differs by competition. This results from the different set of environmental goals in those competitions. The goals and the ranking systems are developed by NRCS with the help of the local work groups or the State Technical Committee. These goals can change from year to year, depending on how much was learned from the previous year's competition. Producers interested in EQIP should contact their local NRCS field staff to obtain a copy of the ranking system to help them better develop plans that meet the goals of the competition.

Table 1 presents summary information on applications and funded proposals for each of the three competitions. Despite the late start in the program, there were a fairly large number of requests in 1997, and more than 50 percent of all proposals were funded. The average cost-share allocation for funded proposals was much lower than the maximum allowed by EQIP ($10,000 per year and $50,000 in total). Cost shares for the priority areas tended to be higher than for the statewide competition, most likely due to the higher costs related to livestock waste proposals.

Tables 2 through 4 present information on the environmental ranking points for the three competitions. General resource concerns are listed in the first column in order of priority. Within each of these categories, farmers could obtain environmental ranking points based on specific criteria in the scoresheets discussed above. The second column lists the total possible points that proposals could obtain for each general category, where more points indicate that producers satisfied more criteria. Recall that the resource concerns vary from competition to competition because local concerns, as defined by local work groups, differ.

The third column shows the percentage of producers who ranked each general resource concern highest. For example, in Table 2, 31 percent of producers obtained most of their environmental ranking points in the soil erosion category. With the exception of grazing in the statewide competition, this number is heavily weighted toward the top 2 to 3 resource concerns. The implication of this is that producers who successfully obtained funds focused on projects that addressed the priorities set by local work groups. By learning about the priorities before applying for EQIP dollars, farmers can focus their projects on priorities and have a better chance of being funded. The fourth column shows the percentage of all points obtained for each category. This measures the relative effort put into the different general categories. As expected, most points went to the most highly ranked resource concerns. EQIP appears to have had the intended effect: it targeted funds to projects that would provide benefits in what are thought to be the most important resource concerns in Ohio.

Analysis and Implications

With only one year of EQIP results to consider, it is difficult to determine whether or not the program has met its objectives. However, it is possible to derive some general conclusions and implications that may be useful to individuals seeking funding, as well as policy makers. On one level, we can use the information in Tables 2 through 4 to develop estimates of how the funds were spent in Ohio: Approximately 49 to 61 percent was spent on livestock and water quality projects; 33 to 49 percent on soil erosion projects; and 2 to 7 percent on wildlife, woodlands, or wetlands projects.

Closer analysis of the proposals (not shown here) reveals that the cost share request was the primary factor determining whether or not proposals were funded. With several exceptions, the highest cost share requests generally were not funded, no matter which competition the producer entered. Higher cost proposals were generally submitted for agricultural waste facilities. This evidence was borne out in regression analysis over the probability of being funded for the statewide competition: higher costs had a strongly negative influence on the probability of being funded. Soil erosion and riparian projects, on the other hand, had a higher probability of being funded, as did projects that obtained points in more than one category.

Implications for Producers

These results lead us to the following implications, which may be useful to farmers applying for funding in the next cycle:

(1) Lower cost-share requests are more likely to be funded.

(2) Funded proposals focused on the top 2 to 3 environmental concerns, as shown in Tables 2 through 4. Proposals funded in the statewide competition did focus on a broader array of concerns, but with the exception of grazing, funded proposals heavily targeted the top environmental concerns.

(3) Funded proposals obtained points in more than one category, and the number of points in each category was often substantial.

(4) Producers should familiarize themselves with the ranking index, and talk with local NRCS representatives before developing proposals. This will help producers develop proposals that meet the specific criteria of each competition, and will help producers keep up with any changes in the scoring systems from year to year.

Implications for the State

For the time being, it is likely that resources will continue to flow to the two conservation priority areas--the West Central Livestock Project and the Western Muskingum River Watershed. Although these areas may change at some point in the future, the NRCS hopes to be able to provide resources to these areas long enough to have a measurable impact on increasing water quality.

At this point, it is still too early to determine if EQIP is a cost-effective program. Benefits, for example, can be determined only after several years with the program and with close monitoring of water quality in the priority areas. While the EQIP program allocates resources for incentives and places emphasis on obtaining water quality benefits, EQIP does not specifically allocate resources for water quality monitoring. Such monitoring would be useful to determine if incentive programs such as this can provide benefits at the level of watersheds or river basins.

However, cost-benefit analysis may not be the ultimate test of EQIP's success. A very different criterion may be important for the agricultural community to consider: Will EQIP, and related programs, induce enough change in agriculture to head off alternative policies? Despite the fact that many sources of nonpoint pollution besides agriculture exist in this urbanized state, the agricultural community cannot be complacent. EPA's stated goal is to attain water quality use designations on 75 percent of Ohio streams by the year 2000. If Ohio does not attain this (and it is unlikely that it will), will other policies besides incentives be forthcoming, and will the agricultural community be able to argue that they have made a good faith effort with incentives?

EQIP therefore is an important program for agriculture. The early results suggest that it is mobilizing a large contingent of producers who want to adopt new practices and systems. These producers may or may not be enough to reduce pollution loading in streams, but they are showing the communities resolve to answer questions that society is asking them.

References

Rankin, E. T., C. O. Yoder, and D. Mishne. 1996. Ohio Water Resources Inventory. Executive Summary: Summary, Conclusions, and Recommendations. Ohio Environmental Protection Agency, Division of Surface Water Monitoring and Assessment Section.

Rausch, J. and B. Sohngen. 1997. "Incentive Programs for Improving Environmental Quality." Ohio State University Extension Fact Sheet AE-1-97.

Rausch, J., B. Sohngen, and E. Norland. 1997. "The Environmental Quality Incentive Program: EQIP." Ohio State University Extension Fact Sheet AE-2-97.

Ohio's Challenge, the magazine of agricultural economics, in conjunction with the Ohio Agricultural Research and Development Center and Ohio State University Extension, is distributed throughout agricultural industry to growers, agribusiness leaders, legislators, education facilities, and mass media. Published fall, winter/spring, and summer by the Department of Agricultural, Environmental and Development Economics, College of Food, Agricultural, and Environmental Sciences, The Ohio State University, Copyright © 1998, The Ohio State University.

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