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Nutrient Trading in Lake Rotorua: Cost Sharing and Allowance Allocation

  • Suzi Kerr

    ()

    (Motu Economic and Public Policy Research)

  • Kelly Lock

    ()

    (NZ Treasury)

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.

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File URL: http://motu-www.motu.org.nz/wpapers/09_09.pdf
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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 09_09.

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Length: 27 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:mtu:wpaper:09_09
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