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Cap-and-trade of diffuse emissions of nitrogen in Lake Taupo Catchment. Reviewing the policy decisions and the market

TR 2013/34
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Report: TR 2013/34

Author: Sandra Barns and Justine Young

Abstract

In 2011, Waikato Regional Plan Variation 5 – Lake Taupo Catchment (Variation 5) became operative, providing long term protection of water quality in Lake Taupo, New Zealand’s largest lake. It was the culmination of more than ten years of policy development by the Waikato Regional Council (the council), involving consultation with affected landowners and the Taupo community, technical investigations, formal submissions and hearings processes, and Environment Court. The objectives of Variation 5 can be summarised as:

  • maintaining the current water quality of Lake Taupo
  • managing adverse effects of land use activities to Lake Taupo water quality
  • avoiding near shore effects from wastewater
  • minimising economic costs and mitigating social and cultural effects.

Cap-and-trade of diffuse emissions of nitrogen in Lake Taupo Catchment. Reviewing the policy decisions and the market [PDF, 613 KB]

Contents
  Executive summary ii
1 Introduction 1
2 Methodology 2
3 Background 3
4 Description of the Taupo cap-and-trade scheme 6
4.1 Establishing the water quality target 6
4.2 The tradable commodity: Nitrogen emissions from agriculture 7
4.2.1 Modelling nitrogen emissions 7
4.2.2 Assigning rights: The initial allocation 8
4.3 The ‘cap’ and reducing emissions 10
4.4 Monitoring and enforcement 14
5 5 The NDA market 16
5.1 5.1 The rights provided by NDAs 16
5.2 Trading 18
5.3 Addressing market issues 19
5.3.1 Transaction costs 20
5.3.2 Information 20
5.3.3 Thin markets 21
5.3.4 The importance of heterogeneity 21
6 Discussion 22
7 Conclusions 27
8 Glossary 28
9 References 29
10 Appendix 1 32