Promoting environmentally friendly farming products is crucial to meeting consumer demand. Although governments implement policy measures to improve the environmental performance of the agriculture sector, their impacts are difficult to assess. This study analyses the performance of agri‐environmental policies in Japan, by using the OECD’s policy impact model and reference level framework. In particular, it identifies the environmental impacts of three simulated agri‐environmental policies based on farms’ characteristics. The results suggest that a policy mix of regulation and an incentive payment would reduce environmental impacts, suggesting that targeted approaches could improve the cost‐effectiveness of agri‐environmental policies.