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The use of N fertilizer in agriculture is a major source of Nitrous Oxide, an important greenhouse gases. Market-based instruments, such as incentives or taxes, may help reduce Nitrous Oxide emission by changing Nitrogen application rate. Using a dynamic programming approach, we found that changing corn price or fertilizer price have effects on both farm profit and Nitrogen application rate. However, farm profit and Nitrogen rate always change in the same direction when affected by either input or output prices. Furthermore, as the corn price is relatively higher than the fertilizer price, changing the corn price is more effective in influencing Nitrogen rate, and thus Nitrous Oxide emission. This analysis can provide policymakers with useful information when designing Market-based tools to help reduce Nitrous Oxide emissions and mitigate global warming.


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