Economic model for the Healthy Rivers process Graeme Doole Technical Leaders Group

Context

Development of limits and targets Develop a number of land use scenarios, with a range of associated limits and targets Limits define the loads allowed to be placed on water quality from inputs, like nutrients and sediment Targets define the time frames associated with reaching a given limit Economic model will help link: Land use → limits Limits → land use

“The solutions to our water quality problems lie on the land, with the people.” Tony Petch

Bounds on development Large catchment (1.1m ha) Diverse sources Biophysical uncertainty Economic uncertainty Divergent opinions Four contaminants Resource constraints

Overall model structure

To achieve targets at least cost, what has to change? Land management Land use Intensity Mitigation Implications for: Production Profit

What are the implications of changing land use? Define land management: Land use Intensity Mitigation Implications for: Targets Production Profit

Distribution of land type Catchment consists of zones based on biophysical resources and land types Cost curves Farm-level information relates cost of mitigation and resultant change in pollutant(s) in each land type Hydrological model Converts land use losses into sub-catchment and/or catchment water quality outcomes Economic modelling Identify profit and production implications of different limits on pollutant(s)

Reasons for adopting this framework Integrate diverse processes Deal with multiple contaminants Simple structure aids interpretation Provides key outputs (e.g. cost of targets) Broad understanding of limitations Part of the puzzle (e.g. SIA, REG)

How does the model work?

An imaginary catchment Assume a 2 ha catchment 1 ha dairy currently 1 ha sheep currently Dairy $2000/ha, 30 kg N/ha $1000/ha, 20 kg N/ha Sheep $500/ha, 15 kg N/ha $250/ha, 10 kg N/ha Dairy Sheep

Without a limit, what happens? Assume a 2 ha catchment Dairy $2000/ha, 30 kg N/ha $1000/ha, 20 kg N/ha Sheep $500/ha, 15 kg N/ha $250/ha, 10 kg N/ha Dairy Dairy Option 1 Sheep Sheep Option 1 Profit in baseline: $2000+$500=$2500 Leaching in baseline: 30 kg + 15 kg = 45 kg

With limit of 40 kg, what happens? Assume a 2 ha catchment Dairy $2000/ha, 30 kg N/ha $1000/ha, 20 kg N/ha Sheep $500/ha, 15 kg N/ha $250/ha, 10 kg N/ha Dairy Dairy Option 1 Sheep Option 2 Sheep Profit in baseline: $2000+$250=$2250 Leaching in baseline: 30 kg + 10 kg = 40 kg

With limit of 30 kg N, what happens? Assume a 2 ha catchment Dairy $2000/ha, 30 kg N/ha $1000/ha, 20 kg N/ha Sheep $500/ha, 15 kg N/ha $250/ha, 10 kg N/ha Dairy Dairy Option 2 Sheep Sheep Option 2 Profit in baseline: $1000+$250=$1250 Leaching in baseline: 20 kg + 10 kg = 30 kg

Mitigation options

What does this show? Identify current state and alternative options Importance of mitigation options! Importance of current yields of contaminants How far do we have to go? Importance of mitigation efficacy What will it take to reach limits? Cost of mitigation options Cost of meeting limits?

Cost and reduction of contaminant Cost ↑ with level of mitigation Curves vary: Land use Soil Climate Intensity Abs. versus Rel. Win-win solutions (?) Level of abatement Cost Abatement cost curve Area 2 Area 1 Area 3 Area 4 Area 5

Examples of mitigation options A1: Effluent mgmt. A2: Autumn N A3: De-intensification A4: Capital structures A5: Land-use change Level of abatement Cost Abatement cost curve Area 2 Area 1 Area 3 Area 4 Area 5

Ongoing work

Baseline loads Baseline loads determined for N OVERSEER Baseline loads determined for P → augment OVERSEER and expert opinion Baseline loads for sediment SedNet NIWA regression model Baseline loads for E. coli SPARROW

Mitigations Mitigation protocol for N (DairyNZ) Mitigation analysis for N (WRC and B & L) Mitigation analysis for horticulture (HortNZ) Point sources Forestry Mitigation workshop P Sediment E. coli

Questions?