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Economic Instruments for Managing Water Quality in New Zealand

Executive summary

Acknowledgements

1 Introduction

2 Overview

3 Developing a framework for evaluating economic instruments

4 The role for non-market valuation

5 Economic instruments for diffuse source water quality issues in New Zealand

6 Summary and conclusions

References

5 Economic instruments for diffuse source water quality issues in New Zealand

Rich soils and rainfall make agriculture and forestry in the country very productive and an important sector of the economy. Agricultural products excluding forestry accounted for 6.7% of GDP in 2002 and agricultural exports are some 47% of all exports with forestry accounting for 11.7% of exports (MAF, 2003). Still in comparison to many other parts of the world, agriculture is relatively extensive in New Zealand and has to date, not had as large an adverse environmental impact as is the case elsewhere. There is, however, concern that if current practices are not controlled, further degradation of ecologically important assets, including some iconic and relatively pristine natural features, will result. In addition increasing peri-urban development fuelled by an increasingly urban and wealthy population is augmenting pressure on New Zealand's natural resources, particularly estuaries in the vicinity of urban centres. As in other countries, these three processes - agricultural, forestry development and urban development can come into conflict with ecosystem protection objectives and water quality objectives.

While the institutional arrangements and policies currently in place may have been adequate to deal with these issues in the past, additional measures may be required if increasingly severe adverse environmental impacts of agriculture, forestry and development are to be avoided in the future. Economic instruments could be an attractive approach for dealing with some of these looming environmental issues in New Zealand. The remainder of this report is an application of the framework for evaluating the potential use of economic instruments to address diffuse source water quality issues in New Zealand.

5.1 The diffuse source water quality issues considered in this assessment

There is a range of diffuse source water quality issues in New Zealand. To demonstrate how the framework proposed in earlier sections would work in practice, the focus here is on two particular water quality concerns in New Zealand:

• Diffuse source leaching and runoff of agricultural nutrients to groundwater then to freshwater streams and lakes, and
• Turbidity and sedimentation of streams and estuaries as a result of surface runoff from urban development and forestry.

5.1.1 Discharge of nitrate from groundwater to freshwater lakes

One important and high profile water quality issue in New Zealand is the growth of phytoplanktonic algae and cyanobacteria (blue-green algae) leading to loss of clarity in many, still relatively pristine lakes (particularly Lake Taupo and the Rotorua lakes). Algae have an impact on water quality for drinking and recreational purposes. For instance, the potential loss of clarity poses a real threat to a lake such as Lake Taupo. Algal growth is largely influenced by sunlight penetration, water depth, temperature, nutrients (mainly nitrogen and phosphorus) and grazing by invertebrates. Healthy streams and lakes will have little obvious alga. Algal blooms are usually a symptom of a system stressed by excess nutrients and/or elevated temperatures (Quinn and Meleason, 2003).

Nutrients reach rivers and lakes through surface run-off and through leaching and discharge of nutrient contaminated groundwater. Phosphorus from anthropogenic sources mainly enters water bodies in a particulate form with surface run-off because when phosphorus is applied to soils as artificial or manure fertiliser, it forms a strong chemical bond with erodible soil particles. In contrast, nitrogen is usually leached in a urea or ammonium form then transformed into its nitrate form where it is usually transported into surface water bodies through groundwater.

With New Zealand freshwater lakes in the central North Island volcanic plateau, nitrate is of particular concern as it is now considered to be the limiting nutrient and therefore the main cause of increasing chlorophyll and decreasing water clarity (Environment Waikato, 2003). A certain amount of nitrogen has always entered New Zealand lakes from rainwater and undeveloped land. It is the increased loading that has resulted primarily from development of grazing based farming systems after European settlement that is leading to declines in water quality (Environment Waikato, 2003). Nitrogen in grazing stock excreta, particularly urine, leaches readily to groundwater (Munday, 1999). While some nitrogen may be lost to the atmosphere through nitrification then denitrification, especially where soils have high organic matter content, once it has entered groundwater nitrate is typically conservative and does not transform into another compound (Cox, 2003).

Continued reliance on septic tank systems, which may fail over time, is also another important source of water quality problems. While the nitrogen loads from this source are often quite small in comparison to loads from pasture (e.g. only 3% of the total nitrate load to Lake Taupo), they can have a noticeable impact on littoral zone slimes and filamentous algae that significantly detract from the attractiveness of lake edges for recreation (Environment Waikato, 2003).

Hydrology research confirms that there can be considerable delays between the time that nitrogen from a pasture begins to leach to groundwater and when resultant nitrate discharges to surface waters. These delays are the result of the relatively slow flow of groundwater and have the following important implications:

• Deterioration of water quality may continue even if no further expansion of agriculture in the vicinity of ecologically sensitive freshwater lakes occurs. This potential for continuing deterioration is a "legacy" of the expansion of agriculture through the 1960s and 1970s that is thought to not yet have fully manifested itself in nitrate discharges.
• Actions taken in the near future to reduce groundwater nitrate loading will have little immediate impact on water quality. For example, in the case of Lake Taupo, reductions in nitrate loading are only expected to change rates of groundwater nitrogen discharge to the lake twenty years or more in the future (Environment Waikato, 2003).
• Any intensification of agriculture that takes place will not immediately lead to water quality deterioration but is likely to cause time delayed increase in groundwater nitrate loading further down the track.
• The distance between upper catchment agricultural development and lake symptoms 30-40 km downstream creates challenges in demonstrating cause and effect to landowners.

In general, the capacity of lakes and wetlands to assimilate various nutrients without experiencing adverse impacts depends on a number of factors such as flushing time, depth, temperature, etc. Long-term monitoring and significant scientific investigation are often required to explain and predict threshold levels beyond which additional nutrient loading is likely to have significant adverse impacts on water quality. Some ecologically or culturally important water bodies have been extensively studied. As a result, the level of nutrient loading reduction that would be required to reverse or avoid adverse impacts is now better understood. For example, the science is suggesting that further algal growth and water clarity declines in Lake Taupo could be avoided in the long run if the rate of nitrogen loading were reduced by 20%. In other less studied systems, nitrate loading reductions required to meet water quality goals are not as well understood.

5.1.2 Sediment loading in rivers and estuaries

Land uses involving clearance of natural vegetative cover that holds soil in place can lead to higher than natural rates of sediment loading in freshwater streams and estuaries. Important activities leading to sedimentation include agricultural cropping (with periods of bare soil) removal of tree cover for forestry purposes and urban development activities that involve removal of the vegetative cover. The level of sediment loading to water bodies resulting from such activities will vary across locations with generally higher rates where vegetation clearance is closer to water bodies, on steeper slopes, and in areas with more intense rainfall events.

Adverse economic impacts of sedimentation can include higher costs associated with water filtration and the cost of dredging to maintain navigable waterways.

Adverse ecological impacts can include:

• Reduced photosynthesis - this results when large amounts of suspended fine sediments lead to turbid conditions and light penetration is reduced. Impacts can be reductions in the presence of certain light dependent alga that form a part of the food chain and consequent reduced growth of microbes and animals that feed on them.
• Disturbance of breeding habitat - deposition of fine sediments into streambed gravels reduces the availability of breeding habitat for fish (such as salmon and trout) and macro-invertebrates that rely on such habitat for breeding.
• Oxygen depletion and toxic impacts - sediments trap and sometimes become attached to pollutants such as fertiliser, pesticides or heavy metals. When fertiliser in sediment is decomposed by microbes the result can be depletion of oxygen levels in water to below what can be tolerated by many important aquatic organisms. Toxic compounds like ammonia and hydrogen sulphide accumulate in sediment and can be harmful to aquatic organisms.
• Disruption of the food web - the many processes described above lead to potential changes in plant communities that in turn disrupt the natural food web.

Many urban and peri-urban developments in New Zealand are in close proximity to important estuaries (i.e. Christchurch, Nelson, Tauranga, Wellington, and Auckland) and, as a result, sedimentation from development is a threat to several important estuaries in New Zealand. The Okura Estuary and its Marine Reserve, for example, is significantly threatened by proposed urban development. There is pressure for new subdivisions in the Okura catchment because of its attractive location close to Auckland. Both the initial earthworks and subsequent construction can result in erosion with each rainfall event. With the establishment of subdivisions, in-stream erosion and sediment transport can be expected to continue because development results in more water impermeable surfaces and therefore higher flood flows. Where stormwater would have soaked into the ground and been filtered before reaching the estuary, stormwater would be channelled away from houses and infrastructure, so entraining and carrying sediments and other pollutants into the estuary.

Research by NIWA for the Auckland Regional Council and the two territorial authorities controlling subdivision and land use in the Okura catchment determined the maximum extent of soil exposure and therefore intensity and rate of subdivision development that could proceed without causing sediment inflows to exceed the threshold rate at which the estuary could digest the inputs without degrading ecological and cultural values. Plan-making processes and Environment Court appeals have recently resulted in science-based decisions to retain rural scale subdivision densities, with a four hectare minimum lot size in the east and an average of two hectares in the western catchment.

Another significant threat to freshwater streams is the erosion, turbidity and sedimentation associated with some aspects of forestry. Extensive plantation forests in New Zealand are the source of most timber and pulp production. While conversion of pastoral land to forests provides erosion control and other environmental benefits, the requirement for regular clear-felling and replanting every 20-40 years does create soil exposure and erosion risks. Of special concern is logging in the often mountainous terrain of along the east coast where clearing of forest in steep gullies in close proximity to streams is particularly threatening. Deforestation in such setting typically causes greater sediment loads than deforestation elsewhere.

5.2 Options to control diffuse source water quality issues

From a technical perspective there are essentially two solutions to the problems of nitrogen discharging through groundwater to freshwater bodies, and sedimentation of streams and estuaries:

• Dealing with the symptoms - this involves mitigating impacts after they occur with engineering solutions. Examples could involve such actions as removing nutrient enriched water from the bottom of lakes that have already been subject to high nitrate groundwater discharge (which is currently being investigated for Lake Okareka near Rotorua) or dredging estuaries that are already clogged with sediments (recently investigated for Matata lagoon/ estuary but not pursued because of contaminant disposal risks).
• Dealing with the causes - this involves reducing that rate of groundwater loading with nitrates or surface water loading with sediments. In the case of nitrate loading from a pasture source, this could involve reducing the area that is grazed or reducing the intensity of grazing on land already in pasture within the catchments of ecologically sensitive lakes. In the case of nitrate loading from septic tank systems, replacement with sewerage systems, sealed on-site treatment such as composting toilets or other structural or maintenance measures are possible. In the case of sedimentation, this could involve re-establishing forest cover on pasture or bare ground, for example through re-afforestation or riparian retirement.

While remedial actions can be taken to mitigate some of the adverse impacts of diffuse source emissions to water, remediation is typically expensive and only alleviates some of the impacts. Some ecological impacts are not easily reversible. Thus measures that prevent the sediment or nutrient loading in the first place are generally more cost-effective, have less adverse effects and are therefore preferable.

From a policy perspective, at least conceptually, any of the range of traditional 'non-market' regulatory or more 'market-based' instruments outlined in Text Box 1 could be used to deal with either nitrate loading of groundwater or sedimentation of surface water.

At least in principle, the following approaches could be used:

• Standards could be implemented in several ways. Output-based standards could be applied as standards limiting nitrate discharge, or sediment load. Practice based standards could be applied as standards limiting practices known to influence nitrate loading. For example, limits could be placed on livestock stocking rates to control nitrate loading or sediment loading could be controlled by establishing allowable levels of earthwork.
• Charge schemes could be implemented that involve a charge on performance (e.g. a charge per kg of nitrate loading or tonne of sediment load). Charging could also be implemented on some proxy for performance that is easily measurable (e.g. per head of livestock). Alternatively, charges could be based on some easily measurable practice (e.g. hectares logged) and differentiated on some easily observed site characteristics that are correlated with the environmental outcome of interest (e.g. rates per hectare differentiated by slope and proximity to stream).
• In a similar vein, incentive payments could be offered for outcomes (e.g. nitrate reduction of sediment load reduction) or proxies for these outcomes or practices correlated with outcomes.
• Tendering is a possible approach to incentive payments that can improve cost effectiveness. The approach requires differentiating among bids to take actions that reduce nitrate or sediment loads based on measurable factors correlated with the outcome of interest (e.g. prioritisation based on slope and proximity to vulnerable water bodies).
• Offset approaches could be implemented by:
  • Setting limits that preclude future conversion of land to pasture to control nitrate loading or setting limits on logging or urban development to control sediment loading;
  • Then in the case of nitrate loading, allowing some livestock farming development or intensification where compensating reductions in stocking rate or area in pasture was provided as an offset. In the case of sediment loading allowing logging where compensating reforestation or other mitigation is provided.
  • Such offset approaches would require offsetting actions based on formulas that would guarantee a "net" decrease in nitrate or sediment load.
• In principle, a tradeable permit approach could be applied to either nitrate or sediment loading.
  • This would require placing a cap on the level of nitrate or sediment load allowed from each source.
  • Alternatively, as a means of dealing with the challenge of measuring actual nitrate or sediment load, caps could be set on levels of allowable input use for some input correlated with nitrate or sediment load.
  • Each individual would be assigned an entitlement to load or use input in the form of tradeable permits.
  • Individuals could meet their cap by reducing loading, using their permitted amount or buying permits. Those able to reduce loading or input use below their cap level would be able to sell permits.

5.2.1 Current diffuse source water quality policy

New Zealand's institutional setting for dealing with diffuse source environmental issues has undergone significant change over the last two decades. The main New Zealand government legislation relating to management of land, water, air, and coastal environments in New Zealand is the Resource Management Act, 1991 (RMA). The Act replaced all or part of 75 statutes dealing with related issues. Two important features of the RMA are that controls are intended to be effects-based rather than activity-based and that environmental management responsibilities have been largely devolved to two levels of local government. A result is that most of the policies and rules that influence diffuse source pollutants are managed at the regional and local level. This includes: water quality and quantity regulation, soil conservation, land use and subdivision controls and pest management policies.

While the particulars of resource management relevant to diffuse source environmental impacts vary across regional councils, some generalisations apply. First, any significant point source discharge to water generally requires council assessment and permission, and effects-based conditions will usually apply. This is typically the case for effluent ponds from dairy-sheds but not necessarily for other diffuse source discharges to water. Second, regional councils charge user fees for permits and there is a trend toward increasing fees to recover more of the costs of administration and water treatment programmes. Third, regional councils are able to manage water quantity by requiring permits for water used for irrigation and food processing.

The RMA enables Councils to impose few conditions on resource use activities that are the primary source of agricultural diffuse source water quality externalities. In fact, the RMA includes an entitlement for agriculture and other existing land uses to continue that land use at its current intensity and type (sections 10 and 20A). This means that Plan rules alone cannot require the land use type or intensity to change, even if the adverse effects of the land use itself are severe. These entitlements to continue existing lawfully established activities do not (appear to) extend to "discharges" for which a significant adverse effect can be demonstrated. The ambiguity has impeded effective and confident use of the potential of the legislation to address diffuse source discharges.

These institutional settings have resulted in reluctance by Councils to establish site specific and significant standards to limit activities that are the source of diffuse source water quality externalities, and consequently this significantly limits the feasibility of quantity-based economic instruments (tradeable permits and offsets).

A logical consequence of this institutional constraint is that most of the New Zealand government programmes to deal with non-point sources of environmental impacts are incentive programmes. A fairly typical example is the incentive payment approach for practices correlated with sediment and nitrate load reduction in the Lake Taupo area. The Lake Taupo Catchment Control Scheme presently has assets valued at $16.1 million and has facilitated 5145 hectares of land retirement for erosion control (Environment Waikato, 2003). The public funds that will go into the proposed new nitrate reduction scheme incentive will facilitate land use change through tendering and other incentive mechanisms.

A range of New Zealand government incentive programmes to encourage sustainable land management exist with many of the programmes focused on facilitating more ecologically sustainable forest management. This includes the Nga Whenua Rahui Fund, the Nature Heritage Fund, The Queen Elizabeth II National Trust, and the Biodiversity Condition Fund Programmes. All of which offer incentive payments for agreement guaranteeing long-term protection of ecologically important indigenous ecosystems.

The devolution of environmental management responsibility to regional and local governments has generally meant that most environmental incentive programmes to address water quality and soil conservation impacts resulting from agriculture are locally funded. Local funds are most commonly raised from property taxes (rates) with part of the cost paid by farmers and rural properties and part paid by urban households. Some funds for administration of local programmes are also raised through user fees. However there appears to be some political aversion, similar to other jurisdictions, to environmental charges that involve differentiated charge rates based on outcome or input use levels. However there is currently little if any use of environmental charges that involve differentiated charge rates based on outcome or input use levels.

In addition, there is enormous variability in the size and economic mass of the various councils, and therefore their ability and willingness to fund incentive programmes. Those regional councils that retained large shareholdings in privatised regional Port Companies generate large dividends, some of which is deployed to environmental incentive programmes (e.g. Bay of Plenty Environmental Enhancement Fund averages $1 million/annum).

5.3 Evaluating opportunities and challenges to using economic instruments for diffuse source water quality issues in New Zealand

Having described the biophysical nature of the two diffuse source water quality issues in New Zealand, the options for dealing with the issues, and the institutional context, we now have the background to evaluate opportunities and challenges to implementing economics instruments. This involves using the framework described in section 3 of this report as a basis for outlining:

• opportunities to use or modify existing institutional mechanisms defining treatment of diffuse source environmental issues in New Zealand in ways that would facilitate development of more effective diffuse source water quality policy; and
• opportunities to overcome key characteristics of biophysical processes and markets that limit potential for cost-effective, or environmentally reliable implementation of economic instruments to diffuse source water quality issues.

5.3.1 Potential for institutional changes to support water quality objectives

The discussion of the current policy settings above suggests that the current institutional setting has resulted in relatively few effective standards related to diffuse source water quality in New Zealand. A result is that the predominant approach to the issue is incentive payments. This policy approach has significant limitations. Generally, the potential of incentive approaches is limited by the available budget and limited responsiveness to price signals. There is also a probability with incentive payments of creating perverse incentives against environmental improvements, whereby landholders delay undertaking environmental improvements until they receive payment to do so. As an approach to protecting ecologically important resources like Lake Taupo, incentive approaches are unlikely to be sufficient.

It follows from the arguments presented in section 3 that economic instruments can represent a way of decreasing the cost of complying with effective environmental standards. However, guaranteeing that the valuable and relatively pristine ecological assets that characterise New Zealand remain in good condition will require some institutional change to enable or require establishment of more stringent standards or regulation.

The institutional setting in New Zealand includes several mechanisms that could be used to facilitate creation of more effective standards limiting activities that are the source of diffuse source water quality externalities. Discharges from diffuse sources can, in principle, be regulated by local councils under the resource consents process of the RMA. The provision can involve requirements for mitigation under defined conditions. For example, in the Lake Taupo catchment regulation prohibiting any further intensification of livestock stocking is being proposed under the RMA by the Regional Council (Hickman, 2004).

One approach is to require the mandatory development of catchment-based water plans that provide standards for environmental outcomes and/or best practice performance. Because the RMA is an enabling rather than a prescriptive statute, it was not expected to function effectively until the full suite of National Policy Statements and Regional Plans was in place. To date less than one third of the necessary water and catchment plans are complete. Such legislative amendments and institutional changes could be augmented with new provisions to enable offsets and tradeable permit schemes for diffuse source discharges of contaminants that would enhance compliance flexibility and decrease compliance costs. Recent legal advice has confirmed the constraints in the existing RMA which limit options for trading permits between properties (Richmond, 2004).

More fundamentally, changes in standards relating to activities influencing water quality are possible at the national government level. In particular, new standards can be introduced under section 43 of the RMA including standards for contaminants, water quality, level or flow, air quality and soil quality in relation to discharge of contaminants. New Zealand is currently in the process of developing standards for air quality and landfill gas under these provisions and it would be possible to develop standards for water quality in a similar way.

Another fundamental change in the RMA that could enable development of more effective standards would be modification of RMA entitlements for agriculture and other existing land uses to continue that land use at its current intensity and type (sections 10 and 20A). Modifying these provisions to clearly define a set of "discharges" to which the provisions do not apply because a significant adverse effect can be demonstrated. Clarifying the ambiguity between provisions for continued land use and intensity and provision prohibiting discharges with demonstrably significant adverse effects should allow Councils to more effectively and confidently develop local standards and plans to address diffuse source discharges.

In peri-urban settings where sediment loading from development is an issue, existing development laws generally allow for the development of controls that limit activities impacting sediment loading. In these settings, further development of such controls could represent an effective standard on which quantity-based economic instruments of the offset type can be built.

5.4 Dealing with barriers to cost effectiveness and reliability in the introduction of economic instruments

Section 3 of this report outlined how a number of attributes of biophysical processes and markets can limit potential for cost saving and/or environmental reliability of economic instruments. One key finding was that neither price nor quantity-based instruments that focus on outcomes are typically applicable to diffuse sources of discharge to water. This is because measuring outcomes in most diffuse source settings is typically infeasible (at a reasonable cost compared to the benefit). This "monitoring problem" is certainly an issue with both nitrate and sediment loading from diffuse sources in New Zealand.

The difficulty in measuring actual outcomes of interest for diffuse source water quality issues has made application of economic instruments to such issues particularly challenging. As discussed in section 3, there are essentially three ways to overcome the "monitoring problem":

• One approach is to focus on a "proxy" - such as an input where the use of the input is correlated with the outcome of interest - rather than the outcome of interest per se. The Dutch manure policy outlined in section 3 is an example of this approach. The policy involves standards and charges set on total (animal plus mineral) fertiliser input.
• Another approach involves focussing on practices that are correlated with the outcome of interest. This could involve things like limiting times and locations that grazing can take place in proximity to threatened lakes, requiring waterways to be fenced off, requiring establishment of riparian buffer strips, and/or limiting logging in riparian buffers of some prescribed width.
• A final approach involves: setting standards, charges, or incentive payments on some easily measurable proxy and where appropriate, these arrangements can be varied by zone or other locational attributes correlated with outcomes of interest. The zone based charge scheme for salinity in the River Murray outlined in section 3 is an example.

In very broad terms, world-wide experience suggests that the practice-focussed approach is often chosen for ease of implementation and environmental reliability. However, practice-focussed approaches have often failed to produce the anticipated cost savings. This is because the flexibility of the landowners or developers is often curtailed. In particular, a practice-focussed approach limits the opportunity for landowners and developers to seek out individualised solutions or take advantage of specialised information about lower cost solutions.

Using inputs as a proxy, in the form of stocking rates to address the nitrate issue in freshwater lakes, could be a feasible basis for implementing a charging approach. Alternatively, if changes in the institutional setting allowed the use of standards, stocking rates could be used as the basis for an offset approach.

In the case of sediment loading from urbanisation, forestry activities, the third approach outlined above, despite its limitations, holds some attractions. Much of the cost savings potential of outcome based charges, incentive payments, tendering and offset systems could be realised with a focus on hectares of deforestation or afforestation but differentiated based on location attributes that are correlated with sediment threat (e.g. slope). This approach is already in use in the East Coast Forestry Programme in the context of a tendering programme (see Text Box 5).

An important prerequisite to implementation of any of the three approaches outlined above is a good scientific understanding of relevant environmental processes. Depending on which of the approaches used, this can require capacity to model relationships between environmental outcomes, input use levels, practices and/or variations in outcomes across location with some confidence. An important implication is that implementing economic instruments approaches often requires a significant investment in environmental modelling.

5.5 Transition approaches to implementation of economic instruments

It is inevitable that there will be some political aversion to new policies like higher environmental standards, differentiated charge rates based on outcome or input use levels, and additional development restrictions. Such aversion does not have to stifle change. Standards that limit how resources can be used have been introduced in the past and are now widely accepted. For example, the right to sell farm products are typically conditional on meeting certain food safety and trade related restrictions on production.

Successful introduction of change can be facilitated with several strategies. One useful approach involves a transition to higher standards with an initial period of reduced compliance burden, followed by a period of gradually increasing standards and penalties for non-compliance. The approach can reduce the perceived threat of changes by allowing individuals to gain some degree of comfort with the production modification required before there are serious sanctions for non-compliance.

An additional strategy worth considering in New Zealand would be to implement a series of limited duration, limited geographic extent pilot projects that trial the use of economic instruments. This is an approach that is currently being pursued in Australia through an initiative jointly sponsored by the Commonwealth ministers for the Environment and Agriculture. The initiative is currently sponsoring 10 pilot projects being lead by Commonwealth, State and Local government agencies that involve investigation of various tendering, offset, tradeable permit and other market based approaches to dealing with diffuse source salinity, water quality and biodiversity issues (http://napswq.gov.au/about/mbi_projects.html). Pilot projects were chosen on a competitive tender basis with the selection criteria oriented towards favouring projects that promised to offer insights into how the most important impediments to successful implementation of economic instruments can be overcome. This same sort of approach could be used in New Zealand to build a base of experience and expertise.