Simulation of alternative dairy farm pollution abatement policies

New Zealand dairy farmers face a tradeoff between profit maximisation and environmental performance. The integrated simulation model presented here enables assessment of the economic and environmental impact of dairy farming with a focus on nitrogen pollution at the catchment level. Our approach extends the value of the DairyNZ Whole Farm Model (Beukes et al., 2005) as an environmental policy tool by building and integrating nitrogen discharge functions for specific soil types and topography using a metamodelling technique. A hybrid model is created by merging the merits of differential evolution and non-linear optimisation to expedite policy simulations, in which farm profits and nitrogen discharges obtained from the differential evolution optimisation process are assembled to form a profit–pollution frontier. This frontier is then subject to constrained optimisation based on non-linear optimisation in order to predict producer responses to alternative pollution control policies. We apply this framework to derive marginal abatement costs for heterogeneous farm types and find that abatement costs for intensive farms are lower than for moderate and extensive farming systems. We further conclude that abatement can be achieved more cheaply using a compulsory standard or threshold tax than using a standard emissions tax.