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:
a) Production
b) Profit
What are the implications of
changing land use?
Define land
management:
• Land use
• Intensity
• Mitigation
Implications for:
a) Targets
b) Production
c) Profit
Cost curves
Catchment consists of zones
based on biophysical resources
and land types
Farm-level information relates
cost of mitigation and
resultant change in pollutant(s)
in each land type
Abatement cost
($/ha)
Distribution
of land type
1200
1000
800
600
400
200
0
0 5 10 15 20 25 30 35 40 45
Reduction in N leaching (%)
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
1. $2000/ha, 30 kg N/ha
2. $1000/ha, 20 kg N/ha
● Sheep
1. $500/ha, 15 kg N/ha
2. $250/ha, 10 kg N/ha
Dairy
Sheep
Without a limit, what happens?
● Assume a 2 ha
catchment
● Dairy
1. $2000/ha, 30 kg N/ha
2. $1000/ha, 20 kg N/ha
Dairy
Option 1
● Sheep
1. $500/ha, 15 kg N/ha
2. $250/ha, 10 kg N/ha
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
1. $2000/ha, 30 kg N/ha
2. $1000/ha, 20 kg N/ha
Dairy
Option 1
● Sheep
1. $500/ha, 15 kg N/ha
2. $250/ha, 10 kg N/ha
Sheep
Option 2
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
1. $2000/ha, 30 kg N/ha
2. $1000/ha, 20 kg N/ha
Dairy
Option 2
● Sheep
1. $500/ha, 15 kg N/ha
2. $250/ha, 10 kg N/ha
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
o How far do we have to go?
● Importance of mitigation efficacy
o What will it take to reach limits?
● Cost of mitigation options
o Cost of meeting limits?
Cost and reduction of contaminant
● Cost ↑ with level
of mitigation
● Curves vary:
o Land use
o Soil
o Climate
o Intensity
● Abs. versus Rel.
● Win-win
solutions (?)
Abatement cost
curve
Cost
Area
Area
Area
Area
Area
1
2
3
4
5
Level of
abatement
Examples of mitigation options
● Examples:
● A1: Effluent mgmt.
Abatement cost
curve
● A2: Autumn N
● A3: De-intensification
Cost
Area
Area
Area
Area
Area
1
2
3
4
5
● A4: Capital structures
● A5: Land-use change
Level of
abatement
Ongoing work
Baseline loads
● Baseline loads determined for N
o OVERSEER
● Baseline loads determined for P → augment
o OVERSEER and expert opinion
● Baseline loads for sediment
o SedNet
o NIWA regression model
● Baseline loads for E. coli
o 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
o P
o Sediment
o E. coli
Questions?