We consider two approaches to quantify New Zealand farmers' ability to mitigate their farm's environmental impact: The construction of marginal abatement cost curves and improvements in farm management practices.Marginal abatement cost curves can be constructed by combining information on the effectiveness of mitigation with cost data. However, we find that the available data is not sufficient to support this approach.We consider improvements in management practices using a distribution of farm production efficiency with regard to nitrogen and greenhouse gas (kg production per unit of emissions). Where differences in production efficiency are due to factors that can be managed by farmers, targeting less efficient farmers to encourage the adoption of management practices similar to those of the more efficient farmers is a potential mitigation strategy.
JEL codesQ53, Q57
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.
Nutrient emissions from agricultural land are now widely recognized as one of the key contributors to poor water quality in local lakes, rivers, and streams. Nutrient trading for nonpoint sources, including farms, has been suggested as a regulatory tool to improve and protect water quality. However, farmers' attitudes suggest that they are resistant to adopting the unfamiliar technologies and farm management practices that may be required under such a scheme. This study develops a model of farmers' resistance to change and demonstrates how this affects their adoption of new mitigation technologies under nutrient trading regulation. We present the model and derive some of its properties in the two‐farmer case.
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