Nitrate Pollution Externality Associated with Increased Corn Demand for Ethanol: a Case Study of Olmsted County in Minnesota

Land use practices generate various environmental externalities. With the increased interest in biofuel production, it is imperative to understand the benefits and costs associated with resource allocation choices made for biofuel production. This paper contributes to the full cost accounting of biofuels research by estimating potential nitrate pollution cost associated with land use change that may result from increasing corn prices due to demand from ethanol producers. The increased demand for corn from ethanol producers is assumed to translate into changed spatial pattern of land use. Specifically this paper develops a regression model to empirically explain the relationship between groundwater nitrate levels in private wells in Olmsted County in Minnesota and a number of variables that may affect nitrate levels in groundwater including land use practices. Coefficients of the regression model are then employed to estimate the potential nitrate pollution levels under each land use scenario assumed. Finally percentage change in nitrate concentrations predicted under each land use scenario is applied to the observed nitrate concentrations in the private wells and a cost estimate is developed based on number of wells expected to exceed the 10 mg/L level.