The Environmental Impact of European Farming: How Legitimate Are Agri-Environmental Payments?

Offering agri-environmental payments to address the various positive and negative environmental nonmarket effects of European Union agriculture might be an efficient way of dealing with market imperfections. However, the complex interaction between farming practices and agri-environmental effects makes it difficult to assess what level of payments is justified under World Trade Organization's Green Box provisions. In reviewing the literature on positive and negative externalities of European farming on the environment, we find evidence to suggest that paying for agri-environmental improvements may be appropriate under the Green Box provisions, even if the payments have a positive production effect.