Landowners' Willingness to Participate in Temporary and Permanent Agri‐Environmental Schemes

ABSTRACT Within the EU and beyond, voluntary agri‐environmental and climate schemes (AES) are used to curtail externalities from agricultural production including nitrate leaching, biodiversity degradation and greenhouse gas emissions. This paper investigates and compares Danish landowners' preferences for temporary and permanent AES using a choice experiment (CE). We focus on landowners, who are the decision makers in terms of permanent land use change. Our study focuses on two land set‐aside contracts: temporary with annual payments and permanent with a lump‐sum payment. Results reveal that landowners require higher compensation if AES design implies giving up direct subsidy payments and hunting rights under both permanent and temporary set aside schemes. Common Agricultural Policy (CAP) direct payments were valued lower in the presence of the CAP agricultural activity requirement in permanent contracts compared to a situation without an activity requirement. As expected, landowners require higher compensation for longer commitments in temporary schemes and for rewetting commitments in permanent schemes. The average implied discount rate for schemes that mirror actual annual and lump‐sum permanent schemes offered to farmers in Denmark is 3.3%–3.4%, while that based on the CE is 1.9%–2.1%. Comparing implicit discount rates of hypothetical CE schemes with current Danish AES highlights a significant policy design misalignment. The implication is that current policy favours flexible annual payments, while the societal benefits from permanent schemes are arguably higher.