Lake Ellesmere is one of the most polluted lakes in the country.

Nearly every dairy farm in the Selwyn district would need to be shut down for a polluted lake to meet national water quality standards, Environment Canterbury (ECan) has told the Government.

The resulting $300 million annual loss in the district's operating surplus would fundamentally change its economic and social fabric, it said.

It would likely lead to a reduction in employment, depopulation, and bankruptcies.

DAVID WALKER/STUFF Lake Ellesmere, photographed from above, contains dark sediment from farming outflow.

They were the findings of a business case analysis prepared by ECan for the Ministry for the Environment and obtained by Stuff. It has not yet been publicly released.

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The business case detailed what would need to be done to improve Lake Ellesmere/Te Waihora, one of the country's largest and most polluted lakes, to the standard required under proposed water quality standards.

Those standards would require the lake to score a 5 on the Trophic Level Index (TLI), the measure used for overall lake health.

A TLI higher than 6 means the lake is hypertrophic, loaded with excessive nutrients, while a TLI of 0 means the lake is pure.

ECan's regional plan requires Ellesmere to have a TLI of 6.6 – higher than the lake's current TLI of about 6.3.

Ellesmere is within the Selwyn district, which has a strong farming community. Waterways flowing through farmland and into the lake are a contributor to its pollution, alongside long-standing legacy issues.

ECan had already asked that the lake be excluded from national standards due to the scale of the pollution, and the fact it was intermittently opened to the sea.

In its business case, ECan said meeting the national standard would all but eradicate the local dairy industry, which was the dominant land use in the district.

"There would be effectively no irrigation or intensive land use in the catchment, and forestry or extensive grazing would dominate the landscape," it said.

"Such large scale effective retirement of intensive land has not been experienced in New Zealand on any scale, and the implications would be far reaching."

The business case was provided to the ministry and its minister, Nick Smith, in late June.

It warned of "severe social and economic impacts" on communities around the lake, and posited an operating surplus loss of 80 per cent – or about $300m per year.

It cautioned it was a broad-brush report and should be seen as indicative: "Because the scale of the changes is so large, the modifications required lie well outside the parameters of any real data or modelled assessments of nutrient reductions in New Zealand."

It comes a day after the Government announced it had allocated $44m for freshwater clean up projects throughout the country.

Three of those were in Canterbury, totalling about $2.7m.

The Government has emphasised the need to protect regional economies while improving water quality.

ECan councillor Lan Pham said the analysis revealed the scale of the problem and the extent to which the costs of pollution were borne by communities.

"This $300m gap is what society is picking up the tab for every year to allow these land uses to continue in this catchment," she said.

"These costs are the ecological and social realities which will be borne by the public and most likely generations to come."

The lake is expected to become more polluted over time. Its nitrogen load of 3200 tonne is projected to increase to 5600t, partly due to the Central Plains Water irrigation scheme.

ECan hoped to limit the increase to 4800t by 2037 – still an increase of 50 per cent of current levels.

Pham said funding clean-ups was pointless in such a case.

"We're just throwing our money away if we're not actually addressing the sources of the pollution."