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Due to the nature of nitrogen cycling, policies designed to address water quality concerns have the potential to provide benefits beyond the targeted water quality improvements. For example, actions to protect water quality by reducing nitrate leaching from agriculture also reduce emissions of nitrous oxide, a potent greenhouse gas. These positive effects, which are incidental to the regulation's intended target, are termed “co‐benefits.” To quantify the co‐benefits associated with reduced nitrate leaching, we integrate an economic model of farmer decision making with a model of terrestrial nitrogen cycling for the watershed surrounding Lake Mendota, Wisconsin, USA. Our modeling approach provides a framework that links air and water pollutants in an agri‐environmental system and offers a direction for future studies. Our model results highlight the finding that the co‐benefits from nitrous oxide abatement are substantial, and their inclusion increases the benefit–cost ratio of water quality policies. Consideration of these co‐benefits has the potential to reverse the conclusions of benefit–cost analysis in the assessment of current water quality policies.