The Taupo Nitrogen Market: The World's Only Diffuse Source Trading Programme

The Taupo Nitrogen market was part of a water quality policy package with three components – regulation of farm nitrogen leaching, a public fund, and a market. 

Observed trading activity and estimates of transaction costs suggest the market is functioning well.

The value of this package as a whole cannot easily be assessed, partly because environmental benefits are largely in the future and intangible, and partly because the learning benefits are still playing out as water quality regulation develops elsewhere in New Zealand. Total costs, many of which are also intangible, have not been fully assessed.

As a result of this policy experience, we can state with confidence that it is technically feasible to include non-point sources within a cap and trade water quality market, that such a market can function, and that once property rights are clearly established, the additional cost of allowing trading is low.

Whether this approach, or variants of it, are valuable to adopt in other catchments around New Zealand and elsewhere will depend on local economic, geophysical, and political characteristics.

You may also want to check out this video from Gareth Morgan on saving Lake Taupo.