Excessive nitrate loads in surface waters are a major cause of hypoxia and eutrophication. In many places, agriculture is the single largest source of nitrogen entering receiving waters. Perennial energy grass crops have the potential to reduce nitrogen loads from agricultural areas, while sequestering carbon and offering new economic opportunities for farmers. This study analyzes farm system-scale cropping and fertilizer application decisions, and resulting nitrate loads, as driven by prices for the bioenergy crop miscanthus, as well as investigates reductions of carbon and other greenhouse gas emissions and nitrogen fertilizer use. An economic model of farm-system-scale decisions is coupled to a hydrologic-agronomic model of the physical stream system to obtain nitrate loading and crop yield results for varying combinations of prices and policies for a typical Midwestern agricultural watershed. For the scenarios examined, a large reduction in stream nitrate load depends on a high price for miscanthus relative to competing crops. A price for miscanthus that exceeds 50% of the average of corn and soybean prices, per unit weight, is estimated to lead to nitrate load reductions of 25% or more. Though significant, these reductions are still less than the recommended 45% reduction in stream nitrogen flux entering the Gulf of Mexico needed to mitigate the hypoxia problem in the gulf. Miscanthus prices are unlikely ever to reach such levels. However, nitrate load reductions could still be achieved by implementing a nitrogen fertilizer reduction subsidy alongside a miscanthus market. The results also show that carbon trading is unlikely to result in any significant reduction in nitrate load. The results are useful for improving understanding of the potential of these incentives, individually and concurrently, to reduce pollution from Midwestern crop agriculture.
