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Nutrient Trading in Lake Rotorua: Cost Sharing and Allowance Allocation

Author

Listed:
  • Suzi Kerr

    () (Motu Economic and Public Policy Research)

  • Kelly Lock

    () (NZ Treasury)

Abstract

This paper clarifies how the benefits and costs of water quality improvements in Lake Rotorua are likely to be shared in the absence of a trading system; presents different perspectives on and principles for deciding how costs should be allocated; and then shows how different options for initially allocating nutrient allowances and achieving reductions in the cap over time conform with those cost-sharing principles. There is no ‘correct’ answer to the question of who should pay. The ‘best’ answer for Lake Rotorua will depend on what the community thinks is fair and what will be politically feasible. If the trading market does not operate efficiently, the way that allowances are allocated will affect the efficiency with which the catchment achieves its environmental goal. If the allocation of allowances provides significant capital it could also affect economic behaviour by loosening capital constraints that limit land development and mitigation.

Suggested Citation

  • Suzi Kerr & Kelly Lock, 2008. "Nutrient Trading in Lake Rotorua: Cost Sharing and Allowance Allocation," Working Papers 09_09, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:09_09
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    File URL: http://motu-www.motu.org.nz/wpapers/09_09.pdf
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    Cited by:

    1. Hugh McDonald & Suzi Kerr, 2011. "Trading Efficiency in Water Quality Trading Markets: An Assessment of Trade-Offs," Working Papers 11_15, Motu Economic and Public Policy Research.
    2. Kelly Lock & Suzi Kerr, 2008. "Nutrient Trading in Lake Rotorua: Overview of a Prototype System," Working Papers 08_02, Motu Economic and Public Policy Research.

    More about this item

    Keywords

    Nutrient trading; water quality; allowance allocation;

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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