The Nitrate Directive (91/676/EEC) has been in force at European level since 1991. It aims to improve water quality in Europe by protecting groundwater and surface water against nitrate (NO3
) pollution from agricultural sources [1
]. After France had already been sanctioned in the past for non-compliance with the directive, the EU Commission also sued Germany in 2016. In particular, the problem of over-fertilization with liquid manure, dung, and artificial fertilizers in agriculture were identified as causes [3
]. In 2019 the European Commission urged Germany to implement the judgment on breach of EU rules on nitrates [5
In principle, plants are dependent on nitrogen (N) for their growth. However, if more plant nutrients are deposited than the plant can absorb, this leads to considerable problems. The excess N that is not absorbed by the plants cannot be stored in the soil and seeps into the groundwater, where it accumulates as NO3
causes various ecological and social consequences, namely eutrophication of water bodies, an acceleration of climate change, and effects on human health [6
]. High NO3
levels in drinking water can quickly lead to health issues, which is why Germany has a legal limit of 50 milligrams NO3
per liter of fresh water [10
]. These requirements can be found in the Drinking Water Ordinance (TrinkwV). Exceeding the limit value according to Annex 2 to § 6 Section 2
TrinkwV can be regarded as pollution. Twenty-eight percent of all groundwater measuring points in the German EU NO3
monitoring network for agriculture, which includes 697 monitoring sites, exceeded this value in the period from 2012 to 2014. Regions with high livestock densities are particularly affected [11
The considerable environmental challenges resulting from over-fertilization with N in Germany were identified already in the 1980 s [12
]. Although the condition of the water in Germany has improved both quantitatively and qualitatively since then, it is still far from the requirements of the EU Water Framework Directive. An assessment of the chemical status of groundwater in Germany in 2014 shows that 37% of all aquifers are in poor chemical status. The main causes are diffuse pollution from nitrate and pesticides from agriculture [11
pollution of groundwater leads to negative externalities (e.g., [6
]). Externalization occurs when the preference order (benefit situation) of an economic entity includes real variables that are directly dependent on the activities of other economic entities, i.e., without mediation by the market mechanism [14
]. A distinction can be made between production and consumption and between positive and negative externalities [17
]. Externalization through over-fertilization with mineral fertilizers and liquid manure and the associated groundwater pollution can be characterized as a negative production externality, since the production possibilities of one economic subject are influenced by the behavior of another economic subject. The increased N inputs accumulate NO3
in the soil, which is then discharged into the groundwater. About 74% of the drinking water produced in Germany comes from groundwater and spring water reservoirs [18
]. If the legal limit of 50 milligrams NO3
per liter of drinking water is exceeded, the water can be technically treated or mixed with water from other sources. This results in increased costs for the water suppliers, who must subsequently increase the price of drinking water. It is clear here that the costs of initial over-fertilization are not borne by the polluter himself (polluter-pays-principle) [19
], but ultimately by the consumer in accordance with the common burden principle. Even though the recognition of the negative externalities associated with N is growing, the damage costs of N to air, water, and climate remain largely unquantified [20
]. Because these costs are often borne by society, they can be called social costs [20
]. Waterworks pay for the removal of pollutants from water, which usually leads to a higher water price. Nature conservation authorities pay to counteract the progressive erosion of soils [9
], and health insurance companies are sued for the health consequences of polluted air and chemically contaminated products. Ultimately, future generations are also affected by these externalities, as they have to pay for the consequences of climate change, for example.
The return of externalized costs to the allocation mechanism of the market is achieved through the internalization of external effects [22
]. The internalization pursues the goal of harmonizing private and social rationality, by aiming to an optimum of Pareto. This best possible state is reached when it is no longer possible to improve one (target) property without simultaneously worsening another. For this purpose, the prior determination of the optimal level of emissions is required. According to this, the externality caused by the emission is internalized just when the optimal level of the emission is reached. This is done by charging the external costs, i.e., by feeding them back into the allocation mechanism. The aim here is to eliminate the misallocation (market failure). To this end, the activity that triggers an external effect must be limited so that the net benefit of the limitation is maximum. The net benefit results from the reduction of the gross benefit by the costs of the cap [14
Within the framework of the internalization of external effects some strategies have been developed. These include damage-oriented instruments such as negotiations according to Coase [21
], environmental liability law, or the Pigou tax [24
]. Pigou’s theory puts the state at the center, as it should influence the behavior of those who cause negative external effects through taxes. On the other hand, those causing positive external effects should be favored by subsidies. The assessment of taxes or subsidies should be made in such a way that the polluter will try to carry out his activity at the socially optimal level in his own interest [24
]. On the other hand, standard-oriented instruments of environmental policy such as certificates, levies, and conditions have become established. The instruments mentioned are not explained in detail because they are of little relevance to the case study at hand. The internalization of external effects requires a high level of information, especially about the scale and distribution of benefits and costs of N-related damages, which is why N management is one of the critical environmental challenges of the 21 st century [20
Since a monetary evaluation of the economic damage requires a very high level of information, it has only been quantified precisely in a few cases. The best-known international study on the subject is by Jules N. Pretty et al. and is entitled “An Assessment of the Total External Costs of UK Agriculture” [27
]. The publication from the year 2000, which has since been revised several times, calculated external costs for Great Britain at 82 € per inhabitant or 298 € per hectare, which can be directly justified by agriculture. Pretty et al. (2000) [27
] distinguished in the calculation between effects on natural resources such as air, soil, water, or biodiversity and effects on human health. For the period from 1990 to 1996, the authors calculated total annual costs of approximately €5.2 billion for the UK. The most significant costs were identified in the area of greenhouse gas emissions and drinking water pollution. In another paper, Pretty et al. (2001) address the policy challenges and priorities for the internalization of external costs in agriculture [28
]. In a French study from 2011, Bommelaer and Devaux calculated that the complete remediation of the French groundwater body from pesticide and fertilizer inputs would cost more than €522 billion [29
For Austria, a study from 2013 is available [30
], which uses the benefit transfer method [31
]. Without going into detail about this approach, it should be mentioned that this is an instrument that transfers the initial model of an existing study to a new study. For the Austrian paper, the British paper by Pretty et al. was used as a baseline study, based on which certain external costs of Austrian agriculture were calculated. An “adjusted benefit transfer” approach was chosen for the transfer. Here, the values from one country are adjusted according to the most important known factors that differ in the original context and in the study context. Accordingly, Austrian per capita income was included, and the utilized agricultural area was adjusted.
A study from the United States replicates the study by Pretty et al. (2000) with US data. Tegtmeier and Duffy examined the external costs of agricultural production in the United States by reviewing and revising valuation studies to compile aggregate figures [33
]. External costs are estimated at $
5.7 billion to $
16.9 billion annually. Another study quantifies the external costs of pesticides in Thai agriculture using two methods: Pesticide environmental accounting (PEA) and an actual cost approach [34
]. The paper by Praneetvatakul et al. was published in 2012 and provides not only calculations of external costs but also concrete proposals for internalization. A cost–benefit analysis for the European Union was presented by Van Grinsven et al. in which both the follow-up costs and the benefits of N from agriculture were quantified and monetized on the basis of metadata for the reference year 2008 [35
]. The social cost of impacts of N in the EU27 in 2008 was estimated between €75–485 billion per year.
Based on Van Grinsven et al. (2013), Gaugler et al. (2016) have transferred the methodology to Germany and made corresponding calculations [37
]. For the reference year 2008, the actual reactive N emissions in Germany were added up, resulting in external costs of approximately €11.53 billion. Although Gaugler et al. calculate external costs approximately, the Federal Organic Food Industry Association (BÖLW) stated in 2015 that there are no studies in Germany in which the external costs arising from non-sustainable agricultural production are precisely determined [39
]. This means that there is no holistic survey that quantifies the entire German agricultural sector against the background of externalization. However, there are individual publications that deal with various related sub-areas of this topic. For example, a report by the Federal Environment Agency entitled “Quantifying the costs caused by agriculture to secure drinking water supply” appeared in 2017 [40
]. In this report, the agriculturally caused costs incurred by water suppliers in the context of drinking water supply were analyzed. In particular, the nitrate problem was focused on. With the help of model regions, reactive and preventive measures that utilities take in view of nitrate pollution were investigated. The economic concept of the internalization of external costs was not considered. Teufel et al. delivered an analysis of the current situation regarding external costs in agriculture in Germany in 2014 [41
]. On the basis of a literature review, it attempts to identify the substantive core of the externalization debate in agriculture and discuss the external costs of unsustainable agricultural practices. It also includes unhealthy diets in the analysis. However, it is also acknowledged here that the overall data situation is very poor and only few studies on the external costs of food production or agriculture have been found.
It could be shown that various international studies on externalization in agriculture in general and monetizing N-related damages in particular are already available. The main focus is usually on approximate extrapolation of external costs within a country, but studies which determine the externalized costs of N eutrophication in a specific application are mostly missing. The case study presented here deals with a concrete area of investigation for which external costs were quantified, through an interdisciplinary approach. The monetization of external costs is helpful because it makes these costs more tangible. In order to be able to generate conclusions for practical application, knowledge of the positive and negative external effects in monetary terms is an important prerequisite. This paper focuses on NO3 pollution in groundwater and relating external costs combining hydrological and economic methods. The deep well Rotenseef in the study area Hauneck serves as a practical example. Hauneck is a municipality in Eastern Hesse (Germany), where nitrate investigations were already carried out in 2003 on behalf of the competent authority. Isotope investigations have shown that agriculture is the main culprit for excessive nitrate pollution in the area. The present example is intended to show how the costs incurred were externalized and what countermeasures the municipality took. The combination of hydrological and economic studies allows correlations to be established between nitrate residence times and the cost structure. Specifically, the question is how long a certain region needs to recover from external effects from a monetary point of view.
Plants are dependent on N for their growth. However, the problem of over-fertilization has been and still is an ongoing problem in Germany. The N surpluses are accumulated in the soil to form nitrate and end up in the groundwater. This causes ecological and social consequences, namely eutrophication of water bodies, groundwater pollution, an acceleration of climate change, and effects on human health [6
]. Quantifying these effects is often difficult because the relevant information is not available and long periods of time are not studied. Reflecting the results of this case study, it can be stated that it provides a realistic picture of the problem of externalization caused by groundwater pollution with NO3
in the deep well Rotensee. Due to the fact that hydrological, hydrochemical, and isotope investigations were already carried out in 2003 and the data situation can generally be considered as good, valid statements can be made on the externalization. Based on the data provided, concrete social costs [20
] could be quantified. The calculation tables and formulas for the calculation of the drinking water price were not provided by the municipal administration, which is why certain assumptions had to be made in the investigation. Due to the absence of the drinking water price calculation, no final proof could be provided that the complete substitutional water supply costs were actually allocated to the water price according to the overhead load principle. However, the development of the water price allows this conclusion to be drawn.
It can also be stated that the present study was limited to the negative external effects. Agriculture plays an important role in the protection of public interests. Seen in this light, it also has positive external effects, such as landscape design, promotion of food security, and regional development. These positive effects were not taken into account in the analysis. In order to be able to present the cost structure holistically, these would have to be included. Furthermore, the survey focused on N overload and the associated NO3
problem. Negative external effects, e.g., resulting from the use of pesticides [29
], were not taken into account.
The study also leaves open how the findings can be transferred to other areas. There is a need for action here, also against the background that many areas in Germany are at the level of Hauneck around 1960/70 with regard to the NO3
situation. This means that in many places there is no consultation according to the AGLW model and livestock numbers and area are still decoupled from each other. The transfer to different areas is one of the future tasks in this field of work. Knowledge of the concrete negative external effects in monetary terms is an important prerequisite for rational policy-making, which is why several studies based on the present model are needed. The AGLW consulting could be understood as a nitrate reduction strategy, among others [47
In principle, it should be noted that an appropriate internalization strategy cannot be based on the direct allocation of costs to individual farmers, which is hardly possible because the NO3
enrichment in the groundwater is a diffuse pollution. Subsequently, it is not possible to identify who the exact polluter is. The isotope investigations allow a statement to be made about which signatures on NO3
can be detected [44
]. In the past it could be deduced from this that the NO3
originates from agricultural cultivation. The current isotope investigation shows that this influence has clearly decreased. In addition to the difficult attribution to the individual farmer, it must be mentioned that these are subject to enormous price pressure and the market forces them to produce at a correspondingly low cost. Furthermore, they are often within the legally permissible range, which is why it is also necessary to discuss the legislative bodies and agricultural policy [49
]. The consumer at the supermarket checkout also has a say in how production conditions can be shaped through his purchasing behavior, which is why it is ultimately logical to redistribute part of the consequential costs to society. This shows that there can be no one-dimensional solution or internalization strategy. In order to achieve environmental relief targets and sustainable agriculture, the various interest groups must work hand in hand.
With regard to NO3 pollution, it must be stated that ‘good practice’ and the formulation of laws and regulations have not yet led to any improvement in the NO3 situation. Due to the continuing non-compliance with the EC Nitrate Directive, the Federal Republic of Germany has been sued and already condemned by the EU in 2016. As a consequence, the Federal Republic of Germany amended the Fertilizer Ordinance. The amendment was adopted by the Bundesrat on 27 April 2020 and has been in force since 1 May 2020. The measures for NO3-contaminated areas will become legally effective from 1 January 2021. It cannot be estimated whether the changed jurisdiction will lead to an improvement in the situation.
The present case study illustrates the external costs that may arise from increased NO3
pollution in groundwater. This is of particular relevance because about 74% of the drinking water produced in Germany comes from groundwater reservoirs [18
]. For the municipality of Hauneck in Hesse, it was determined that almost half of the drinking water price consists of externalized costs. In the concrete example, follow-up costs from the establishment of a drinking water replacement supply and the continuous external water supply totaled €452,392. This is not an isolated case throughout Germany and there are areas with significantly higher NO3
pollution (e.g., Weser-Ems) [3
]. To a certain extent it can be stated that some areas in Germany today are at the same level as Hauneck was in 1960/70. The consequences in terms of the NO3
problem and other directly related problems are yet to come or are already real, as the complaint of the EU Commission against Germany shows. It is therefore difficult to quantify the total external effects of overfertilization and NO3
Comprehensive agricultural advice has been provided in the study area since 1992. The resulting decrease in NO3 pollution is gradually becoming apparent, as has been demonstrated by the present study. The measure has led and continues to lead to a reduction in external costs, i.e., consequently to a harmonization of private and social costs. It can therefore be considered to be internalized. The costs can be described as preventive (avoidance cost approach), whereas the construction of the drinking water supply system and the continuous supply of external water are of a post-care nature (damage cost approach). If these findings are applied to the Federal Republic of Germany, a suitable internalization strategy could consist of making it compulsory to introduce agricultural extension services for farms and/or municipalities along the lines of the AGLW in the form of a state environmental policy requirement. Based on the annual contribution rate of €10,688 (information from the municipality of Hauneck, 2018) and assuming, for example, 100 farms receiving advice, this would result in a flat rate of €107 per company.
The study was also able to confirm the forecasts made in 2003 regarding the residence time of NO3 in the area of the deep well Rotensee, with the help of isotope investigations. This NO3 is 30 years in the aquifer. The conclusion of the groundwater mixing system by dilution with a tritium-free component was not only confirmed in the current modelling, but could also be quantified proportionately. From the findings it can be concluded that the NO3 dwells in the subsurface for a very long time due to complex hydrogeological processes. For this reason, optimization processes only become visible after several decades. Consequently, the follow-up costs of nitrate removal will also accompany the municipality over these long periods.
Overall, it can be stated that the environmental-economic approach of internalizing external effects can provide a good breeding ground for a sustainable environmental and agricultural policy, if the instruments are sensibly coordinated. It could be shown that the site-related particularities of internalization problems and sustainability challenges must be taken into account. Accordingly, the policy mix must be adapted to the respective situation [50
]. The key issue here is to contain harmful developments and promote positive effects. By pricing in consequential costs, organic farming, for example, can be put in an appropriate light.