This research explores the environmental and economic implications of nitrogen discharge abatement from dairy farms. This thesis develops a framework to analyse agri-environmental policies using bio economic modelling. A novel approach has been developed using farm survey data for catchment scale modelling and policy analysis. Policy analysis is facilitated by various modelling techniques and software. Geographic Information Systems (GIS) are used to convert data from multiple sources to a common platform for policy analysis. Whole dairy farm system simulations coupled with a Metamodel built on the Overseer software are used to establish the relationship between farm economic returns and nitrogen discharges. This relationship is used to derive abatement costs and resolve policy implementation challenges. Data Envelopment Analysis is used to develop Environmental economic efficiency measures. Finally a stylized model is used to determine spatially optimal riparian buffer strips. The results show that the differences in abatement costs and environmental efficiency between farming systems are significant. The adverse effects of information asymmetry can be effectively minimized by adopting differentiated incentives and target monitoring. Riparian buffers are a cost effective abatement tool that complement abatement at the intensive margin. Clear understanding of farm heterogeneity will help to design effective policies. Techniques for the measurement of policy impact have been successfully developed and add significantly to our knowledge of the underlying relationships. The use of simulated data for agri-environmental policy analysis is versatile and is expected to have several valuable applications. These methods can be applied to other geographic areas and research domains. This thesis provides useful tools for policy makers seeking to develop empirically informed agri environmental policy.