Economic and environmental impacts of implementing multiple agro-environmental policies in New Zealand

Background/Question/Methods

This paper investigates the implications of policy on farm income, land use and the environment when New Zealand landowners face multiple environmental constraints. It also looks at the interaction between climate and nutrient reduction policy and the extent to which water quality policy can be used to meet climate obligations and vice versa. We use the NZ Forest and Agricultural Regional Model (NZ-FARM) to assess the economic impacts of climate and water policies in New Zealand at the territorial authority (TA) level. The spatially explicit agro-environmental economic model estimates changes in land use, agricultural output, farm management and environmental impacts, and particularly focuses on the areas of the country currently undergoing a process to set nutrient limits and where agricultural production is expected to expand and/or intensify (e.g., Canterbury). The policies investigated include a range of carbon prices on land-based emissions ($0-$30/tCO2e) as well a range of caps on nitrogen (N) leaching from diffuse sources (0-30% below reference case). Potential changes in other environmental factors and ecosystem services such as soil erosion and water availability are also investigated.

Results/Conclusions

The model estimates that implementing stand-alone GHG and nutrient emissions reduction policies for the land use sector could create some environmental benefits outside the scope of the policy, but not necessarily all environmental outputs. For example, a GHG emissions reduction policy could incentive land use change to enterprises that have greater nutrient leaching rates (e.g., from sheep and beef to arable).  The economic cost to the landowner was also found to vary by policy and region, because the heterogeneous biophysical and socio-economic factors have varying effects on the cost and effectiveness of land use and farm management options.  On average, farm profits were reduced by 5% for a GHG price of $20/tCO2e and by 6% for reducing N leaching by 20% below the reference case. Simultaneously implementing the two policies may result in desired goals of reductions in N and GHG emissions without placing a much greater economic burden on landowners in particular regions or sectors in New Zealand (i.e., 1-2% additional loss in farm profit relative to a stand-alone policy). Additional measures may also have to be taken into account when seeking to enhancement of other ecosystem services beyond the scope of the policy.