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Advances in linking the science of ecology with economics and the development of agri-environmental modeling systems coupled with new information technology suggest new public policy approaches that reward agricultural producers for providing ecological services. An incentive-based ecosystem approach that identifies and quantifies an array of environmental services that can be provided by agricultural land, and then facilitates the development of markets in these services can protect environmental quality while improving farm income. Sustainability can be achieved whereby economic needs of society are integrated into environmental protection. Before presenting new agricultural policy approaches for improving environmental quality and, in particular, managing agricultural nitrogen, the nature of the relationship between agriculture and the environment and its implications for policy are discussed.