A market mechanism to trade contaminants within a catchment could be developed to support the adoption of mitigation measures. Every farmer within a catchment would be allocated an amount of nutrient which they could legally apply to land and then if they wished to apply further nutrients to land they would have to purchase a permit for further allocation. Alternatively, if a neighbouring farmer had adopted innovative techniques to reduce nutrients then they could buy a portion of the rights that this farmer had originally been allocated. The perceived benefit of such an approach is it allows some members to innovate and others, who do not see this as cost-effective, to buy further allocation. At some point the cost to purchase further permits should exceed the cost of innovation and therefore encourage mitigation measures to be adopted.
Effectiveness
By its very nature a market mechanism is concerned with trading goods or services among participants in the market. In the current scenario the focus is trading the allocation of contaminants. The indirect consequence of this is that some farmers will innovate and undertake mitigation measures so that they have more to allocate. Yet this is not the focus of the scheme and is not a guaranteed outcome. Therefore it is predicted that a market mechanism will only be moderately effective in terms of the degree, extent and rate at which mitigation measures are expected to be adopted by farmers.
Equity
A market mechanism may produce an inequitable situation for those who have recently purchased farm land. Despite the fact that they did not discharge the contaminants they are responsible for ensuring that they do not exceed the nutrient cap. This could involve considerable cost and would disadvantage those who have recently purchased a farm.
Costs
There are administrative costs involved with recording the allocation of nutrients each individual landowner has. These costs are not considered to be very high and are likely to be absorbed within the Regional Councils’ existing budgets.
Externalities and risks
One risk associated with a market mechanism is that there could be slow uptake of mitigation measures or only token measures undertaken.