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Does Complex Hydrology Require Complex Water Quality Policy? NManager Simulations for Lake Rotorua

Listed author(s):
  • Simon Anastasiadis


    (Motu Economic and Public Policy Research)

  • Marie-Laure Nauleau


    (ENSAE ParisTech)

  • Suzi Kerr


    (Motu Economic and Public Policy Research)

  • Tim Cox


    (National Institute for Water and Atmospheric Research)

  • Kit Rutherford


    (National Institute for Water and Atmospheric Research)

This paper examines six different approaches to nutrient management, and simulates the economic costs and environmental impacts associated with them using NManager, a partial equilibrium simulation model developed by Motu and NIWA, the National Institute for Water and Atmospheric Research. We focus on Lake Rotorua in the Bay of Plenty in New Zealand, where the regional council is concerned with the decline in the lake's water quality and has set a goal to restore the lake to its condition during the 1960s. Reaching this goal will require significant reductions in the amount of nutrients discharged into the lake, especially from non-point sources such as farm land. Managing water quality is made difficult by the presence of groundwater lags in the catchment: nutrients that leach from the soil arrive at the lake over multiple years. The mitigation schemes we consider are land retirement, requiring best practice, explicit nitrogen limits on landowners, a simple nutrient trading scheme, and two more complex trading schemes that account for groundwater lags. We demonstrate that best practice alone is not sufficient to meet the environmental target for Lake Rotorua. Under an export trading scheme, the distribution of mitigation across the catchment is more cost effective than its distribution under explicit limits on landowners or land retirement. However, the more complex trading schemes do not result in sufficient, or sufficiently certain, gains in cost effectiveness over the simple trading scheme to justify the increase in complexity involved in their implementation.

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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 11_14.

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Length: 45 pages
Date of creation: Dec 2011
Handle: RePEc:mtu:wpaper:11_14
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  1. Newell, Richard G. & Sanchirico, James N. & Kerr, Suzi, 2005. "Fishing quota markets," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 437-462, May.
  2. Mitchel Y. Abolafia (ed.), 2005. "Markets," Books, Edward Elgar Publishing, number 2788.
  3. R. Prabodanie & John Raffensperger & Mark Milke, 2010. "A Pollution Offset System for Trading Non-Point Source Water Pollution Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(4), pages 499-515, April.
  4. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
  5. Hung, Ming-Feng & Shaw, Daigee, 2005. "A trading-ratio system for trading water pollution discharge permits," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 83-102, January.
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