Assessing design options for a Nutrient Trading System using an integrated model

Water quality in many New Zealand waterways is currently declining leading to lakes and rivers being closed for contact recreation such as swimming and potentially threatening our clean, green image. Much of this decline is associated with an increase in the nutrient loss from agriculture in the surrounding catchment. Nutrient trading systems are being considered in a number of catchments across the county to restrict the nutrient loss entering the waterways and thus improve the water quality. Such a system is currently being implemented in Lake Taupo and Environment Bay of Plenty is exploring actively the use of such a system to manage nutrient loss in the Lake Rotorua catchment. Yet the design of such systems is challenging. In a collaborative effort between Motu, NIWA and GNS-Science, we are developing a spatial, stochastic, dynamic simulation model, N-TRADER to simulate the effect of different aspects of nutrient trading policy for the Lake Rotorua catchment. This model combines the economics of land use and management decision making, the functioning of temporal nutrient allowance markets and a model of nutrient flows and lags and is based on the best available empirical information on the geophysical and economic conditions for this catchment. This paper will discuss the design of N-TRADER and some of the nutrient trading system design questions that we plan to explore with the model including what is the impact of different nutrient caps and what is the impact of higher transaction costs.