Nutrient Trading in Lake Rotorua: Cost Sharing and Allowance Allocation

Suzi Kerr and Kelly Lock ()
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Kelly Lock: NZ Treasury

No 09_09, Working Papers from Motu Economic and Public Policy Research

Abstract: This paper clarifies how the benefits and costs of water quality improvements in Lake Rotorua are likely to be shared in the absence of a trading system; presents different perspectives on and principles for deciding how costs should be allocated; and then shows how different options for initially allocating nutrient allowances and achieving reductions in the cap over time conform with those cost-sharing principles. There is no ‘correct’ answer to the question of who should pay. The ‘best’ answer for Lake Rotorua will depend on what the community thinks is fair and what will be politically feasible. If the trading market does not operate efficiently, the way that allowances are allocated will affect the efficiency with which the catchment achieves its environmental goal. If the allocation of allowances provides significant capital it could also affect economic behaviour by loosening capital constraints that limit land development and mitigation.

Keywords: Nutrient trading; water quality; allowance allocation (search for similar items in EconPapers)
JEL-codes: Q53 Q57 Q58 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008-09
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mtu:wpaper:09_09

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