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

This paper was published in 2014 by the Australian Journal of Agricultural and Resource Economics.

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.