Implications of fairness for the design of nitrate leaching policy for heterogeneous New Zealand dairy farms

•Identifies the relative cost of fair policies to restrict water pollution.•Application to diverse dairy farms in Waikato region of New Zealand.•Cost of Fairness decreases with higher levels of pollution reduction required.•Low Cost of Fairness highlights suitability of fair policies for implementation.•Cost of fairness not strictly decreasing with number of agents considered.

The implementation of environmental policy may be eased when perceived outcomes are fair. The primary objective of this study is to investigate how the consideration of fairness in policy design affects the cost-effectiveness of instruments aimed at reducing nitrate leaching from heterogeneous dairy farms in New Zealand. The cost-effectiveness of each policy is compared across different levels of leaching restriction and the number of regulated farms. The cost-effectiveness of fair policy alternatives, relative to the least cost outcome, is extremely variable. Accordingly, there is no one fair policy that is the most cost-effective in any situation. Nonetheless, uniform policies that require an equivalent proportional reduction in baseline leaching load or an equivalent absolute level of mitigation are optimal, or close to it, across all simulated levels of N reduction. The implementation of such policies is promoted by their pragmatism, as baseline N loads and the associated abatement levels can be estimated through biophysical modelling. The suitability of fair policies for environmental protection is promoted by an inverse relationship between the amount of N that must be abated and the Cost of Fairness. In contrast to previous theoretical work, this empirical analysis also shows that the cost of a fair policy, relative to a differentiated policy, need not increase as the number of agents affected by a policy rises.