Relative Effectiveness of Pay-for-Practice Versus Pay-for-Outcomes in Phosphorus Abatement

This report seeks to answer the question “Are water quality improvements more cost-effective when generated by paying farmers to adopt conservation practices (pay-for-practice), or when generated by paying them for quantified environmental results (pay-for-outcomes)?” By comparing the US Department of Agriculture’s EQIP program to a privately-run water quality trading market in Wisconsin, the analysis finds a substantial cost advantage for the pay-for-outcomes approach.

Key finding

Across six Wisconsin cropland practices, EQIP payments averaged $54.47 per pound of phosphorus reduced. Wisconsin water-quality trading delivered phosphorus reductions at a volume-weighted mean of $35.18 per pound. At those observed rates, redirecting the approximately $6.5 million annually spent on the six analyzed EQIP practices through the Wisconsin Clearinghouse could purchase an estimated 185,000 pounds of phosphorus reduction per year, compared with 119,000 pounds—approximately 55% more.

This is a comparison of selected Wisconsin EQIP practices and observed Wisconsin trades, not a finding that all outcome-based programs will necessarily outperform all practice-based programs.

Q & A

• Is paying for phosphorus outcomes less expensive than paying for agricultural practices?

  In this Wisconsin comparison, yes. The report estimates a volume-weighted mean cost of $35.18 per pound of phosphorus reduced through water-quality trading, compared with $54.47 per pound across six analyzed EQIP cropland practices. The result is specific to the programs, periods, practices, and methods examined.

• What exactly did the report compare?

  The study compared actual payments made under Wisconsin EQIP contracts from 2022–2024 for cover crops, filter strips, no-till/residue management, conservation crop rotation, nutrient management, and grassed waterways with observed transactions in Wisconsin’s water-quality trading market.

• How were EQIP’s phosphorus reductions estimated?

  The researchers combined actual EQIP payments with SnapPlus estimates of average phosphorus-loss reductions for each practice. They modeled 300,000 combinations of Wisconsin crops, soils, locations, tillage, cover crops, and nutrient-application conditions, isolating each practice’s average effect.

• Does the trading estimate include administrative and verification costs?

  Yes. The trading figure includes design, outreach, and verification costs embedded in transactions; the EQIP figure includes farmer payments but not NRCS technical assistance or overhead. The report explicitly identifies this as an imperfectly symmetrical comparison.

• Why might outcome purchasing cost less?

  The report’s explanation is that uniform statewide practice-payment rates do not direct money to locations and practices producing the most phosphorus reduction per dollar. A marketplace can instead price quantified results and allow buyers to select lower-cost verified reductions in the applicable watershed.

• Does this mean USDA should end cover-crop payments?

  No. The report notes that cover crops may yield benefits beyond phosphorus reduction and does not recommend eliminating their support. Its point is that, where phosphorus reduction is the specific objective, an outcome-based purchasing mechanism can reveal which practices and locations are most cost-effective.

• What would an outcome-based USDA pilot look like?

  The report proposes using an RCPP alternative funding arrangement to purchase verified reductions through an existing marketplace such as the Wisconsin Clearinghouse, while working through requirements such as NEPA compliance.