Lets assume that the benchmark for acceptable nitrogen leaching in a sub-catchment is 30 kg per ha. And further’ let’s say the incentive/disincentive price for leaching is $20 per kg. Then how a corrective tax would work is that it would punish farms that leach above 30 kg/ha and reward farms that leach below that rate. Say Farm A leaches at 45 kg/ha while Farm B leaches at 15 kg/ha. Then in any year Farm A would be paying a penalty of $300 per ha, while Farm B would be receiving a cheque for $300 per ha. Say both farms are 150 ha, then that’s in effect a transfer from one farm to the other of $45,000 per annum.
Over time the benchmark would continue to be lowered as our environmental protection standards get stronger. And in any sub-catchment we’d ensure that the pollution charges collected are all returned to the better-than-benchmark farmers in that same sub-catchment. The idea of course is to reward good practice and to punish bad.