This paper documents the methodology used to calculate the costs of adopting new conservation practices or changing land use, in order to improve water quality in Iowa. We have identified a wide ranging set of conservation practices to be put in place in a policy scenario designed to improve the State's surface water quality. The practices include grassed waterways, terraces, contouring, conservation tillage, land set-aside, and nutrient management strategies. The basis for the positioning of practices on the landscape are the physical characteristics of the agricultural land. The primary data source used is the latest available National Resource Inventory dataset. A unique data source on the costs of conservation is not available, therefore we have developed a methodology that allows us to combine economic models with available costs data from several sources. Economic models on the cost of land retirement and conservation tillage adoption are combined with data from the Environmental Quality Incentives Program in Iowa, and with estimates of the direct profit loss due to the reduction of fertilizer. Attributing a cost in terms of lost yield, and therefore lost profit, to a possible reduction in fertilizer use on corn acres has proven quite challenging.

We used these costs to calculate the social costs of the policy at the state level, assuming that farmers already adopting conservation practices are not compensated, and that the farmers that decide to put the land in CRP and to adopt conservation tillage are only paid the minimum necessary to do so.