Synergies between Nutrient Trading Scheme and the New Zealand Greenhouse Gas (GHG) Emissions Trading Scheme (ETS) in the Lake Rotorua Catchment

The intensity of agricultural production affects both nutrient and greenhouse gas emissions. Environmental policy designed to reduce one type of pollution may have complementary effects on the other type. This paper explores this issue in the Lake Rotorua catchment in New Zealand using an agro-environmental economic model, NManager. The Regional Council is planning to implement a nutrient trading scheme (NTS) to reduce nutrient discharges to the lake, especially from non-point sources such as farmland, while at the same time the NZ government is planning the agricultural sector into the GHG emissions trading scheme (ETS). We model the abatement costs, potential level of total cost savings; and environmental impacts of agricultural production under three policy scenarios: the inclusion of agricultural in (1) the nutrient trading market only; (2) the NZ GHG emissions trading scheme (ETS) only; and (3) both the nutrient trading market and the NZ ETS concurrently. We find both analytically and numerically that (i) the total level of GHG mitigation is higher when there exist both the NTS and NZ ETS compared to when there is only a NZ ETS; (ii) the permit price of nutrient discharges is inversely related to the permit price of GHG emissions; and (iii) the total economic profit loss from pollution abatement is lower when GHG emissions and nutrient discharges are managed concurrently compared to the sum of the economic profit loss from regulating GHG emissions and nutrient discharges separately.