Synergies between policy instruments for regulating interdependent pollutants: a numerical analysis of emissions trading schemes in New Zealand

Agricultural production affects both nutrient and greenhouse gas emissions. Environmental policy designed to reduce one type of pollution may interact in positive or negative ways with efforts to reduce other types of pollution. In this paper we explore complementarity of abatement practices in the Lake Rotorua catchment in New Zealand (NZ) using an agro-environmental economic model, NManager.

The application presents an ideal case study since the local government is considering the implementation of a nutrient trading scheme (NTS) to reduce nutrient discharges to the lake from non-point sources such as farmland. At the same time, the national government is reviewing whether to include greenhouse gas (GHG) emissions from the agricultural sector at a farm scale in a GHG emissions trading scheme (ETS).

The abatement costs, the environmental impacts, and the distribution of costs and benefits under three different types of initial N permit allocation in the agricultural sector are evaluated under three policy scenarios:

1.  the inclusion of the agricultural sector in the nutrient trading market only;
2. the NZ GHG emissions trading scheme (ETS) only; and
3. both the regional NTS and the NZ ETS concurrently.

Results illustrate that

1. the total level of GHG mitigation is higher with the concurrent NTS and NZ ETS compared to when there is only a NZ ETS;
2. the permit price of nutrient discharges decreases as the permit price of GHG emissions increases; and
3. there are stark differences in land-use change under each policy scenario.

The GHG ETS alone resulted in no land-use change, the NTS alone resulted in no remaining dairy, while the dual policy setting (GHG ETS and NTS) made dairy, a highly profitable but also N intensive farm activity, to be economically viable once again; suggesting that there could be gains from an additional regulation.

This manuscript is related to the following two papers:

• Synergies between Nutrient Trading Scheme and the New Zealand Greenhouse Gas (GHG) Emissions Trading Scheme (ETS) in the Lake Rotorua Catchment
• Taxes versus tradable pollution permits: evaluating environmental policies that affect multiple pollutions