Cost-effective policies for improving water quality by reducing nitrate emissions from diverse dairy farms: An abatement–cost perspective

A flexible and replicable approach for the appraisal of the cost-effectiveness of various policy instruments for the regulation of nonpoint pollution from heterogeneous farms is presented. The framework is employed to evaluate three regulatory instruments for achieving reductions in nitrate leaching among a large population of dairy farms in the Waikato region of New Zealand. These instruments are (1) a differentiated policy that allows individual abatement effort to vary among farms to satisfy a catchment-wide reduction in leaching load, (2) a uniform policy that requires all farms to reduce emissions by a constant proportion, and (3) a threshold policy that requires all farms to emit beneath a given threshold leaching load. A 30% reduction in leaching will cost around 1.4, 1.96, and 4.41 million dollars across the catchment with a differentiated, uniform, and threshold policy, respectively. In comparison, a 50% reduction in leaching will cost around 7.77, 8.58, and 11.24 million dollars across the catchment with a differentiated, uniform, and threshold policy, respectively. Thus, a differentiated policy achieves required environmental outcomes at least cost. This result highlights the value of modelling heterogeneous farms in policy evaluation for nonpoint pollution control.

► Studies cost-effective policies to reduce nitrate leaching from 410 dairy farms.
► Presents flexible framework for analysis of regulation of diverse firms.
► Differentiated policy more efficient than uniform or threshold policies.
► Highlights importance of representing firm heterogeneity in policy models.