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Nyce, Olivia --- "Water Markets Under the Resource Management Act 1991: Do They Hold Water?" [2008] CanterLawRw 5; (2008) 14 Canterbury Law Review 123


WATER MARKETS UNDER THE RESOURCE MANAGEMENT ACT 1991: DO THEY HOLD WATER?

OLIVIA NYCE*

When the Well's dry, we know the Worth of Water.1

I. Introduction

Life as we know it depends upon water. This simple molecule, comprised of two hydrogen atoms and one oxygen atom, is essential for life on Earth. Earth is sometimes described as the 'water planet' since more than 70 percent of its surface is covered by it.2 Over 97 percent of this is sea water. This leaves freshwater to amount to a maximum of three percent, much of which remains frozen in ice caps and glaciers. Liquid fresh water is estimated at a tiny one percent of worldwide water resources. It is a precious resource, and is becoming increasingly more so.

The stresses upon New Zealand's water resources are markedly less than many other countries, but demands upon freshwater are growing. Under New Zealand law, natural resources are largely managed under the Resource Management Act 1991 ('the RMA or 'the Act'), and the water allocation system that has developed under it is rooted in an assumption of abundance. But this situation is changing. Significant changes in land use are occurring, spurring an increase in irrigation. Given New Zealand's economic emphasis upon primary industries, water supplies are essential for growth in this sector. Higher values are being attributed to instream water uses such as environmental protection and recreation. New Zealand's population is also demanding ever-increasing energy requirements. Hydroelectric power schemes are crucial to the country's electricity generation, and these require instream flows to be kept at specified levels within dammed rivers. As energy use rises, there have been renewed calls for the creation of new hydroelectric power schemes to meet this need.

New Zealand's water resources and rainfall are unevenly distributed, and annual and seasonal variations in rainfall can be significant. Precipitation is concentrated particularly in the western areas of the country. The east coasts of both islands are considerably drier, and climate change is projected to make them more so.

The combination of an escalating water appetite and projected environmental changes will result in increased water scarcity for New Zealand in the coming decades. The standard approach towards environmental management has been the use of 'command and control' regulation. This is clearly seen in water allocation processes. Limitations are already becoming evident, and will become more pronounced as water scarcity rises. The major concern with the present process is that it is very difficult to prioritise competing demands for water and to manage them fairly and efficiently. The New Zealand government has itself recognised the challenge of sustainable freshwater management, and is in the process of a major water review as part of the Sustainable Development Programme of Action. This is not yet complete, but so far has involved a discussion paper in 2004,3 extensive public consultation in 2005, and a further supporting document in 2006.4 In both the discussion papers and elsewhere, a variety of suggestions have been made for water allocation reform.

Economic approaches and the increased use of tradeable water permits are advocated as one way to provide greater flexibility for water allocation. Although there is a body of literature, this is almost entirely from overseas sources. New Zealand is only beginning to look seriously at the issue.5 One of the actions outlined in the 2006 supporting document was a further government report upon the options for improving permit transfer systems.6 This was expected to be completed by February 2007, but has not yet been released. The RMA allows for the limited trade of water permits, and water markets have occasionally been employed on a very small scale. If they are to play a greater role in water allocation there is a need to rethink some of the concepts presently seen within the Act.

This paper seeks to form a part of this growing body of academic analysis. It considers the difficulties emerging under the present regime, and the potential for water markets to play a part within a reformed water management system. The RMA and its overarching sustainability ethic makes the establishment of a market a different proposition in New Zealand compared to other countries. The author is approaching the topic from a legal standpoint, and although a limited explanation is made of economic mechanisms, this is done in order to establish a context for the reader. It is fully recognised that both the theory and practice relating to water markets will incorporate political, economic, legal, scientific, and engineering components. It is an area of resource management that requires a truly integrated approach. Here, New Zealand is advantaged in some respects, because solutions are far easier to set in place before resources are fully allocated. Once they are, reforms are more likely to require changes to use rights, an unpopular path.7 All of the varying strands need to be worked through carefully, with a framework put in place before market powers are unleashed.8

II. THE CURRENT LEGAL LANDSCAPE

Responsibility for Water Management: Regional Councils

The RMA establishes the legal framework for water management in New Zealand. It adopts an effects-based approach, regulating the effects of activities upon the environment rather than the activities themselves. One of the central tenets of the Act is for environmental decision-making to be made at the appropriate level of interest, within the community most directly affected by the outcome. It is regional councils which have been delegated the primary responsibility for water planning and management, and the areas that they administer are broadly defined by the boundaries of major water catchments.

The RMA does not specifically refer to water allocation, and central government has so far taken a 'hands-off' approach in providing guidance. This has left regional councils to determine their own allocation processes within the broad sustainability principles of the Act.9 The functions of regional councils are outlined in s 30 and include control over the taking, use, damming, and diversion of water, and over the quantity, level, and flow of water in any water body.10 To carry this out, a regional council may set maximum or minimum water levels and flow rates,11 and establish plan rules for the allocation of water.12 Regional councils exercise similar powers concerning water quality.13

Regional policy statements and plans are the major planning instruments by which regional councils carry out their RMA obligations, and, in turn, determine water permit applications. However, although the RMA establishes regional plans as the central feature of water administration, they are not made compulsory. Regional councils simply 'may' draw up regional plans,14 unless one of the s 65(3) circumstances occurs in which case their desirability must be considered.15 In the hierarchy of planning instruments, regional plans fall below both national policy statements and regional policy statements, and must not be inconsistent with these. National policy statements are optional, and are prepared on the recommendation of the Minister for the Environment.16 Their purpose is to state objectives and policies for matters of national significance that are relevant to achieving the purpose of the Act. Central government is yet to use them for statements of water policy. The Minister for the Environment also has the ability to recommend national environmental standards.17 These have a more technical focus18 but have similarly remained unused in the water sphere. Meanwhile, regional policy statements are compulsory. These establish the broad context for resource allocation by setting out the particular resource management issues of the region and the objectives, policies, and implementation of policies related to these issues.19

Regional plans, the most important documents for water management, are intended to help a regional council fulfil its functions under s 30 and achieve the purpose of the Act. If prepared, they must state the objectives for the region; the policies to implement the objectives; and the rules (if necessary) to implement those policies.20 The presence of plans is crucial for water management, as an allocation system that makes decisions outside a planning framework is unable to provide for a long term approach. Their preparation is the only way to set minimum flow regimes.21 Plans set the conditions under which water may be used or impacted upon, and the criteria for the assessment of consent applications.22 The majority of regional councils have an operative plan or are in the process of developing one.23

Purpose and Principles

The key Part of the Act for resource allocation is Part 2. The statutory purpose in s 5 underpins all decisions made under the RMA as well as the planning instruments established pursuant to it. It is the fundamental section of the Act, stating that '[t]he purpose of this Act is to promote the sustainable management of natural and physical resources'.24 Sustainable management is defined in s 5(2), meaning management of the 'use, development, and protection of natural and physical resources'. There is a tension between these three strands, each of which is pulling in a different direction. The definition goes on to require this management to occur 'in a way or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety', 'while' carrying out three listed functions:25

(a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and

(b) Safeguarding the life-supporting capacity of air, water, soil and ecosystems; and

(c) Avoiding, remedying or mitigating any adverse effects of activities on the environment.

There has been an intense debate surrounding the meaning of 'while' in this context, and whether the ecological function is superior, or a factor to be balanced equally against human functions. It is only if 'while' means 'if' that there is an environmental 'bottom line' to the statutory purpose which must not be crossed. It is important to note that water is specifically mentioned as part of one of the environmental outcomes in s 5(2)(b), but water is also necessary for people and communities to provide for their social, economic and cultural wellbeing, and for their health and safety. It thus has a role under both ecological and human functions.26 Councils and cases have both inclined towards a broader 'balancing' approach amongst these outcomes,27 but in terms of water management, s 5 has frequently been interpreted to require the setting of minimum flows.

The purpose is supplemented by the statutory principles outlined in ss 6-8. 'All persons exercising functions and powers' under the Act must look to these in order to achieve the statutory purpose. These 'recognise and provide for ... matters of national importance',28 'have particular regard to' a variety of other matters,29 and 'take into account the principles of the Treaty of Waitangi'30 respectively. A number of the elements outlined under these three sections are particularly relevant to water issues. As a matter of national importance in s 6, the 'natural character' of the coastal environment, wetlands, lakes and rivers and their margins must all be preserved and protected from 'inappropriate' use and development.31 The relationship of Maori to their ancestral waters is also listed here.32 All of the 'other matters' in s 7 are either directly or indirectly relevant to water resources. Treaty principles may well be relevant under s 8, depending upon circumstances.

Water itself is defined very broadly to include water in all its forms whether flowing or not and whether over or under the ground, including fresh water, coastal water, and geothermal water.33 'Fresh water' is defined further as all water except coastal water and geothermal water. The definition of water does not include water in any form while in a pipe, tank or cistern.

Water Provisions

Section 14 sets out the primary restrictions upon water allocation. It restricts the taking, using, damming or diversion of water, or any heat or energy from it, unless it is expressly allowed by a rule in a regional plan or through a resource consent. There are four limited exceptions to this: reasonable domestic needs or the reasonable needs of animals for drinking, the use of geothermal water for tangata whenua, the reasonable domestic or recreational needs of coastal water, and finally the use of water for fire-fighting.34 Apart from the use of water for fire-fighting purposes, all remain constrained by the requirement that their taking or use has no adverse effect on the environment.

Section 15 goes on to prohibit the discharge of contaminants into water, or in such a way onto land that it will eventually enter water. This is the primary water quality provision in the RMA, and applies unless the discharge is expressly allowed by a rule in a regional plan; is pursuant to a resource consent; or falls within a specified exception.

It is clear that water is subject to a different presumption from land use. There is a permissive presumption for activities carried out on land, which are permitted unless specifically prevented or controlled by a plan.35 In contrast, water use is entirely restricted unless permitted, creating a restrictive presumption. There are five possible classifications for activities under the RMA, with each involving different requirements if an individual wishes to use a resource. Where an activity involving water is not otherwise classified by a rule in a plan, it is regarded as a discretionary activity,36 and will require resource consent.37 The vast majority of applications for resource consents concerning fresh water will be discretionary. Resource consent for an activity that would otherwise contravene s 14 is called a 'water permit'.38

Resource Consents

Part 6 of the RMA outlines the resource consent process. An application will be made under s 88 of the Act to the relevant local authority that issues the particular consent sought. For water permits, this will be the regional council. An applicant must include an assessment of the environmental effects that will occur as a result of the activity, to a degree of detail that corresponds to the scale and significance of possible effects of the activity upon the environment.39 Discretionary activities may or may not be granted consent, and may have conditions imposed.40 The resource consent application must be publicly notified unless it has been classified as a controlled activity under the planning document41 or the authority is satisfied that the adverse effects will be minor.42 Whether this is required will frequently depend upon the scale of the proposed water use, abstraction or diversion. Notification provides individuals with the opportunity to make submissions in support or opposition to a consent application.43

As water bodies approach full allocation, notifications may be required in a wider range of situations. This is because a greater number of environmental effects are felt as more water is removed from a water body, and these effects may reach a point where they are no longer considered 'minor'. Increasing abstractions and uses may also have adverse effects on other persons in the catchment. Such effects might include reduced reliability in a water source, an impact upon downstream recreational or tourism activities, or reduced water quality. This opens up the option of limited notification, whereby notice of a resource consent application must be served on all persons 'adversely affected' by the grant of a consent, unless all have given written approval.44 Section 94B lays out a number of factors to consider when making an assessment of affected persons, and this states that if a plan permits an activity with the adverse effect contemplated, there is discretion to disregard it.45 If the regional plan provides an environmental baseline for abstractions and diversions, a council could point to this section in declining to notify. It is expressed in the statute as a value judgment for the consent authority. But even so, it is possible to conceive of situations where there are unanticipated effects of water allocations that are not covered by a plan. This is one potential area of development in the future.

As with all consent applications, the authority is required to have regard to the matters in s 104 when considering an application for a water permit. This section is expressly subject to Part 2 of the Act, with sustainable management the overall goal to be promoted alongside the specific matters in ss 6-8. Section 104 requires the consideration of actual and potential effects on the environment if the activity is allowed, and the provisions of relevant planning documents. There is great discretion in making a decision, and the authority will either grant consent (potentially with conditions) or refuse it.

III. CURRENT PROBLEMS WITH WATER MANAGEMENT

First in First Served

Consent applications under the RMA are presently allocated according to the first in first served principle (FIFS). This is a system underpinned by seniority, with the first users to make an application being first in line for the rights. Within the RMA this is tempered by the requirement to look at the sustainability of the resource and the environmental effects of a proposal. The FIFS principle was confirmed by the Court of Appeal in Fleetwing Farms v Marlborough DC,46 which concerned two different entities seeking a coastal permit to establish a mussel farm. The Court recognised that where the applications related to the same area of water, the grant of one acted to exclude the other,47 and held that the RMA had adopted a FIFS basis.48 Priority in time therefore had to be recognised.

This decision has since been complemented specifically in a water allocation context in the High Court in Aoraki Water Trust v Meridian Energy Ltd.49 This involved Meridian Energy, a company which had been granted consents to dam, divert and use water for the purpose of electricity generation from three high country lakes, principally Lake Tekapo. A number of other parties wished to use the same water for irrigation purposes, and sought a declaration that Meridian's consents were not a legal constraint upon the ability to issue consents over the same water. They argued that there were similarly no constraints upon the making of provisions in the regional plan being developed by the newly created Waitaki Allocation Board. These arguments were firmly rejected by the Court as being contrary to FIFS.

The Court held that the first permit-holder is entitled to an exclusive right to the resource.50 Without this legal right of priority, the Court considered FIFS to be ineffectual. It would also result in the overallocation of resources, which is contrary to Part 2 of the Act and would result in chaos as permit holders competed for water usage.51 Where a resource is fully allocated, a consent authority cannot issue another party with a permit to use the same resource unless it is specifically empowered by the RMA to do so.52 Issuing new permits would have the effect of derogating from the existing consents, and a consent authority would be acting unlawfully if it allowed this.53

The FIFS principle highlights a number of deficiencies within current water management. It does not allow for any flexibility once water is allocated, nor for decision-makers to evaluate the merits of competing uses. This in fact has been the major reason that councils have traditionally preferred it, as they are otherwise forced to 'pick winners'. There are also difficulties in that authorities would have to gather much information to make such decisions, which is expensive and time consuming for councils operating on limited resources. The FIFS approach has in the past been considered the most equitable way to approach allocation decisions, and does avoid a certain amount of controversy.

There are three limited situations where FIFS may be checked. The Minister for the Environment has a broad call-in power for resource consent applications of national significance.54 Secondly, regional councils are permitted to include a rule in the regional plan concerning flow levels or rates, even if this affects existing consents.55 The consent authority may then review conditions attached to a consent so that the consent complies with any such flow requirements.56 Thirdly, there is a further general power under s 128 for a consent authority to review conditions before the consent expires if there is an adverse effect on the environment,57 or the consent itself provides for review.58

Where an applicant's proposal requires a considerable financial outlay, authorities tend to grant permits for long periods. This is intended to allow for a reasonable return upon the investment. The maximum period for consent grants is 35 years.59 The average consent durations are 18 years for surface water takes, and 25 years for groundwater takes.60 Canterbury is notable for its formal council policy to grant water permits for the maximum period of 35 years unless there is reason for a shorter duration.61 Depending upon the conditions attached to the permit, this means that there is potentially a very long time before the allocation is reviewed. These problems are compounded by the general practice of renewing permits when they expire, especially where there is an investment-based expectation for continued access to water. This practice has been entrenched further in sections 124A-C of the Act, inserted through an amendment in 2005 which will take effect in 2008. These sections give existing consent holders priority over new applications when they apply for a new consent on expiry, unless altered by a regional plan.62 The practice of councils, and now its legislative confirmation, have effectively created a default position or economic bias in favour of permit holders once they have obtained a consent.

The apparent ease and simplicity of FIFS comes at the expense of other values. The lack of flexibility makes it difficult for water management to adapt to changing requirements.63 Fixed allocations permitted for a fixed period have traditionally been seen as crucial for the security of water users. But Jenny Huang argues that they create a false sense of security, and that continuing to draw fixed volumes may work against permit holders if they fail to take account of changing circumstances.64 It also does not guarantee allocation to water uses with the greatest efficiency or value unless these proposals happen to be first-in. While not an issue while resources are plentiful, this problem rapidly emerges as demand for water increases and allocation limits are reached. In economic terms, it imposes an opportunity cost upon all other potential users and beneficiaries of the water.65 There is no compensation for the loss of access to water, and no way for users to gain access to water outside the consent process.

It stands to reason that the priority-based system will not serve sustainable management in all situations. 'Avoiding, remedying or mitigating any adverse effects'66 is a real challenge, and FIFS also provides a questionable guarantee of serving the needs of future generations.67

Over-allocation

While New Zealand's water scarcity is not yet extreme, there are no longer sufficient resources 'to meet all needs, in all places, at all times'.68 By the end of 2006, there were close to 20 000 consented water takes, amounting to a total allocation rate of 679m3/s by volume.69 Nationally, water allocation has increased by approximately 50 percent between 1999 and 2006.70 Agriculture is the dominant abstractive use of allocated water, much of which is for irrigation purposes. Irrigation currently accounts for 77 percent of all water allocations by volume.71 Farming is intensifying, and on top of the 580 000 hectares of land currently irrigated in New Zealand, it is estimated that there are a further 1.5 million hectares that are potentially irrigable in the near future.72 Coupled with a more variable climate resulting from climate change and the need to ensure sustainability, this growing demand is projected to exceed capacity beyond sustainable levels, especially in agriculture-rich regions.73

It is already becoming increasingly common for water bodies to be approaching full allocation, or even be closed to any further permit applications.74 Although almost 10 years old, a study carried out in 1998 asked regional councils to identify water resources which were either fully allocated or where 'existing take is [as] close to the maximum that you believe can be justified under the RMA'.75 Councils identified 134 fully or over-allocated resources. Overallocation occurs where the amount of water allocated to consent holders exceeds the level required for the protection of the resource's environmental values.76 This can affect water quality and the ability of the water body to support ecosystems.

It is important for decision-makers to have access to good information when granting water permits so that they can determine when full allocation is reached. If there is insufficient research on the size, nature, and characteristics of a particular water resource, there is a risk that adverse effects and sustainability will either be assessed incorrectly or overlooked.77 Information of this sort is expensive and time-consuming, and is subject to ongoing change as successive allocations are made. However, the government has signalled that the use of the best available information is an underlying principle for any water allocation reforms.78 As allocations increase, there is also an escalating risk of water being used or allocated in ways that result in unanticipated cumulative effects.79 It is presently very difficult to guard against these except through minimum flows, which have their own associated difficulties. National guidelines upon the issue are similarly lacking. This is a further reason that it is prudent to grant water permits for short terms, and to provide for ongoing monitoring and review conditions.80 Since the decision in Aoraki Water Trust v Meridian Energy Ltd,81 councils are far more likely to include a condition that the consent may be modified if appropriate.82

It is widely recognised that the amount of water allocated under individual water permits tends to be far in excess of the actual amount used by the consent holder.83 An applicant must show that the amount of water they are requesting is 'reasonable' for the intended use, but methods adopted for making such 'reasonable' assessments are imprecise, in some cases merely amounting to a rule of thumb judgment.84 Once an applicant has gained a consent, there are no incentives to adopt efficiency measures, resulting in far greater wastage of water than necessary. Even if a consent holder does exceed his allocated take, monitoring is such that this may not even be realised by authorities. Although some councils have introduced metering and the reduction of allocated volumes in line with metered takes when permits are renewed, this can result in a reverse 'use it or lose it' incentive to use water so as to guarantee generous estimates.85

Overallocation of water also has a reliability dimension. As more water is allocated from a water source, it will be able to satisfy its allocations less frequently. The grant of a resource consent does not guarantee reliability. However, as a source becomes less reliable, the uses to which the water is put similarly become less viable. This is particularly so for intensive land uses which require a consistent water supply. There is a possibility here for councils to be sued for the breach of a statutory duty if they disregard the sustainability requirements of the RMA and compromise the security of supply as a result. The Aoraki decision makes mention of the unlawfulness of doubly allocating water,86 yet also recognises the principle that permits do not guarantee availability by themselves.87 This is not an area that has yet been challenged. If water use rights were defined more fully,88 it is suggested that this may confer a stronger basis for a breach of duty in relation to that right.

So far, councils have taken differing approaches for dealing with fully or over-allocated resources. Once a resource is fully allocated, some councils provide for waitlisting while water becomes available.89 But in many cases councils have simply 'freed up' water by adjusting existing permits to reflect water take more accurately, usually when permits are renewed.90 If a water body experiences a water shortage, councils may also impose reductions in water takes if permitted by a plan or consent condition. This might occur through proportional cutbacks as flows drop, rostering arrangements between users, or providing some uses with priority. Domestic water, firefighting needs and stock water are often given precedence if water is temporarily scarce.91 In extreme situations, a consent authority may temporarily suspend the exercise of resource consents.92

Most of these current approaches are somewhat shallow, and do not directly confront the deeper issues. Sustainable development takes account of economic, social and environmental consequences of activities in decision-making, and implies that growth is necessary for a society to meet its economic and social needs.93 If development in a region is to continue, particularly within water-heavy sectors such as agriculture, there is a general need to improve the efficiency of water use once a resource is fully allocated. Without improving efficiency, development will stall. The allocation regime therefore needs to focus more upon the efficiency of water use.

Efficiency

The RMA does place some emphasis upon the efficient use of resources, with part of the sustainable management definition referring to the management of resources in a way that enables communities to provide for their economic and social well being.94 The 'efficient use and development of natural and physical resources' is a principle to have 'particular regard to' under s 7(b) and thus must be considered at both at the planning and resource consent stages.

Efficiency is a concept that can be misused, as of itself it does not state what the desirable outcome should be. For water resources, the standard definition of efficiency has three dimensions: allocative, technical and dynamic efficiency.95 Allocative efficiency refers to the allocation of resources between competing users, and the arrangement of these resources to maximise society's welfare.96 This process is often described as moving water to 'higher value' uses. Technical efficiency refers to the actual use of water, and the maximum beneficial output that can be achieved from it.97 Dynamic efficiency draws upon both of these other efficiency elements in determining efficiency over time, and how resources can continue to be arranged to maximise allocative efficiency.98 The dynamic nature of efficiency means it requires frequent review.

Market advocates are generally critical that councils do not consider efficiency measures when making decisions.99 Most in fact do make overtures towards efficiency, but the problem is that this only extends to the technical efficiency of individual takes.100 Even so, water allocations are significantly over-estimated, suggesting that authorities are unsuccessful in this regard. The FIFS approach also works against efficiency criteria by locking allocation decisions in, often without any meaningful review prior to expiry. While FIFS works well when there is an excess supply of water, it is inefficient at allocating water between competing users and uses when demand exceeds supply.101

Efficiency is an important goal in economic theory,102 and this is the main reason why markets have been advocated as a management method. Economic measures are arguably one the most effective ways of shifting behaviour towards wise use and conservation.103 There is little doubt that the technology exists for the more efficient use of water, and it is argued that such developments can be stimulated through market mechanisms.

In New Zealand, an individual wishing to abstract or use water must make an application payment to the appropriate regional council for administration charges relating to the processing of the resource consent application. If the application goes unchallenged and is approved, most councils impose ongoing monitoring charges. These are usually the only payments that must be made. A consent holder is then responsible for getting the water to their property and applying it, which may have considerable infrastructure costs.104 But the water itself is a free resource. To date, few councils charge for water by volume. Without a value placed upon water in some way, users have few incentives to adopt more efficient water uses or to limit their usage.

IV. OPTIONS FOR WATER MARKET REGIMES

Economic mechanisms for resource management have begun to receive greater attention in New Zealand. Top-down, 'command and control' management systems are arguably reaching the limits of their usefulness.

Regulatory allocation has definite drawbacks, as is evident from the above discussion, and the incorporation of a water market in some form has been suggested as a possible solution. New Zealand's economy has undergone significant reform over the last twenty years, moving away from welfare capitalism towards an increasingly liberal economy. The introduction of a market-based system for water can be seen as an extension of this process.105 The RMA itself provides for the limited transfer of water permits, but if water markets are to gain greater prominence as part of any reformed water allocation process, the character of any such market needs to be considered.

Market Theory: Why Include Markets?

By long-standing definition, 'economics is the study of the allocation of scarce resources'.106 Put simply, a market is a place where buyers and sellers interact and goods and services are exchanged between multiple users, either for other goods and services or for money.107 The theory behind their use is that placing a value upon the resource will encourage efficient usage and move resources to higher valued uses, since those who purchase it must be willing to pay the given market price. They also have some ability to internalise externalities. In the water context, the creation of a water market is dependent upon transferable water permits so that they may be moved from one user to another. The transfer of these permits allows water users themselves to make adjustments to water allocations.

Markets encourage individual freedom and decision-making. Under the RMA there is a devolution of power away from central government towards the localised management of resources. Water markets devolve this further towards individuals who are given greater autonomy to engage in their own decision-making. The difficulties in gaining full information for enlightened decision-making at a government level are theoretically ameliorated, since informed volunteerism is built into the system.108 From this it also follows that there is the potential to remove the more bureaucratic elements of a command and control system. Authorities are not put in the position of having to discern the most beneficial usage of the water and then 'picking a winner.' A perfect market should work this out itself.109

Implementing Markets

Successful markets depend on both the dynamics of the marketplace and the legal framework used to manage it.110 There are a virtually endless number of ways in which a water market may be arranged. Markets may be small or large, established over anything from a specific water resource, region or catchment area to a national or even international level. Water markets generally consist of two broad types of trade: there may be a temporary transfer of water through the trade of a 'lease' right, or a permanent transfer of ownership.111

The way that water is priced within market mechanisms is also in need of consideration. A price may be attached to individual water permits, which are then traded amongst individual users. The market then determines permit price through supply and demand.112 The other option is for water pricing, which may be carried out on a per unit, area, tiered or output basis.113 These are quite separate strategies, although it is possible for them to complement each other. The setting of water prices is an entire issue of its own, potentially incorporating values for both in-stream and out-of-stream uses, meaning that prices may be site-specific.114 There has been a long-standing belief in New Zealand that water resources should be free, and when this topic is raised, there are consistent concerns about the privatisation of water resources.115

There are various obstacles to overcome in setting up a market. Water rights require careful definition, and must be thoughtfully limited if water markets are to be beneficial to society as a whole. Markets can be viewed upon a spectrum, with a completely free market at one end of the scale and a completely centralised regulatory system at the other. New Zealand is presently very close to the latter end. It would therefore need to be determined how far along the spectrum New Zealand would move, and which formulation appears most satisfactory in light of the RMA.

At the most free-market end of the scale are self-regulating markets. These involve very few regulations, instead building environmental and other values into the market itself. This concept is too superficial for water in most situations, creating a real danger for a 'tragedy of the commons', with every player in the market seeking to maximise their gains.116 While promoting efficiency, non-economic values are potentially left on the sidelines because taking account of them would put individuals at a self-imposed disadvantage. In principle, environmental groups or government bodies can compete for water resources, buying up permits to water that would remain instream and safeguard the common good. But without any overarching authority there are no guarantees of this, and it is economics rather than society that dictates the end-use of water.117 This approach is clearly outside the statutory purpose of the RMA, most particularly the protection strand within sustainable management.118 Moreover, markets tend to focus upon short-term gains,119 and this potentially discounts the needs of future generations, also a component of sustainable management.120

Very few countries have complete deregulation of water assets.121 It is much more common for market mechanisms to be built into a regulatory framework. This helps to create satisfactory market conditions and provides a way to keep markets within some degree of control or balance. They are often hybrid systems, using regulation to set standards and market instruments to determine the most effective pathways to achieve them.122

A good example of this is a 'cap and trade' model, which aims to provide market advantages while protecting the environment. Under this model, a limit is imposed upon the amount of water that may be extracted or used from a resource. This is the cap. It imposes scarcity and therefore value upon a resource, and ensures that the water body will not be over-allocated. The extractable water is then divided into individual permits, representing the right to take a certain amount of water from the resource. If an individual permit-holder reduces their water use, they are able to sell their unused permits to someone else. This provides an incentive to improve water efficiency, users are free to make these improvements in any way they wish. A cap and trade approach would fit quite easily within the RMA framework.

Regardless of the formulation implemented, New Zealand would benefit from a great deal more information on water resources and their use than exists at present. Decisions concerning water and water policy are complex and involve a range of related factors. The form of a trading regime will dictate who needs ready access to this information: the more decentralised it is, the more that individuals will need to know. The more centrally managed it is, the more the authorities will need to know.123 If individuals are granted greater powers of decision-making, it has been recommended that there be some way to facilitate exchanges of information on water availability and values, for example through water brokers or water user groups.124 A public register of water rights is also suggested so that individuals can obtain the exact details of a right.125 In Australia, such registers have included the name and address of the permit holder, the permit period, a description of the water resource involved, and the details of any security interests in the permit.126 Anyone holding a security interest must be notified before transfer occurs.

V. TRADEABLE WATER PERMITS UNDER THE RESOURCE MANAGEMENT ACT 1991

The RMA was drafted alongside the economic reforms pursued throughout the 1980s, and economic themes were central to many of the debates over resource management. The Water and Soil Conservation Act 1967 only permitted water rights to be transferred to a new owner or occupier of the land that had been subject to that water right.127 The RMA has taken a further step in this direction with s 136, which allows for the limited trading of water permits.

Section 136 outlines the conditions that must be satisfied for the trade of a permit. The section distinguishes between water permits for damming and diverting water on one hand, and take and use permits on the other. Damming or diverting permits are tied to the land for which they are granted, and may only be transferred to an owner or occupier of that site.128 But for other water permits, all or part of the original consent may be transferred either to a person at the original site, or to a person at another site, provided that they are within the same catchment area, aquifer or geothermal field.129 If the permit is to be transferred off-site, transfer must be allowed by a regional plan or be specially approved by the consent authority.130 The grounds for special approval effectively amount to the standard resource consent process. For any transfer to be valid, the consent authority must also receive notification.131

Also relevant to the use of tradeable permits is s 32, which requires both the Minister for the Environment and local authorities to consider alternative ways to meet the purpose of sustainable management of resources. When they are preparing policy statements and plans, they must evaluate whether the objectives sought and their means of implementation are the most appropriate in the circumstances. It was initially thought that this section would encourage the use of economic instruments, which may be more effective management tools in certain situations. It has not had this effect, in part because it has been watered down from its initial focus on the necessity of individual rules towards an overall assessment in light of the RMA purpose.132

To date, there has been little use of tradeable water permits except in the context of changing land ownership. There have been a few examples of short-term transfers and some trading within irrigation scheme companies. Very few planning instruments allow for off-site transfer, and those that do have covered very limited circumstances. A new provision was inserted into the RMA in 2005 to allow for the temporary transfer of permits.133 The previous absence of this had acted as a disincentive to trade. Leases are attractive to many potential traders because they allow the original party to preserve the underlying rights to water for the future, while providing a means for temporary reallocation. They allow for flexibility, and parties to the agreement may customise them to suit their needs.134

It is possible to conceive of two types of water market that might be created beneath the RMA. The provisions of the Act are concerned purely with trade prior to abstraction, through the transfer of the permit rights themselves. But trade might also occur after the water itself has been abstracted, with people buying the water.135 There is a potential clash here with the concept of water ownership, and whether permit holders have sufficient rights to be able to sell water in its physical form. Some of the legal issues in this regard are discussed below. But depending upon the method used to carry an abstraction out, any later trade of the water concerned may fall outside the RMA provisions altogether.136 The broad definition of water in s 2 does not include water contained in a pipe, tank or cistern. Once water is stored in this way, an informal market could develop around this water, and it would not be subject to the current oversight provisions of s 136.

The incentive for greater trading of water would be expected to emerge only once resources are fully allocated. Where this is not the case, individuals can apply for a new permit themselves. Once there is a scarcity of water, it gains an obvious value. This can be created naturally by demand exceeding supply, or artificially by 'capping' access to water.137

The current trade regime has largely been grafted onto the existing allocation procedures rather than forming a central part of the regime.138 Apart from regional councils carrying out their standard functions, there are no accompanying institutions for a market regime, and thus little facilitation and encouragement for engaging in trade.

VI. WATER OWNERSHIP

Legislation has vested the right to take, use, dam and divert water in the Crown. New Zealand had previously followed English common law on riparian rights, whereby it was accepted that a riparian owner did not have a property interest in the water of a stream. Instead, a riparian owner had use rights, and these were unrestricted for ordinary or domestic purposes.139 But where the water use was for purposes regarded as 'extraordinary' or 'secondary,' restrictions were extensive. They operated to exclude virtually all secondary uses, since one of the requirements was for the water to be restored to the water body 'substantially undiminished in volume and unaltered in character'.140 They also excluded any rights to water where it was intended for use upon non-riparian land.141 Ownership rights in water itself were only applicable for still water bodies where the surrounding land was owned privately.142 The Water and Soil Conservation Act 1967 extinguished these common law water rights.143 Where considered appropriate, they were replaced with statutory rights granted under an administrative structure. These new rights were widened and no longer had to be for 'ordinary' purposes.144 This structure continues to exist in a modified form under the RMA.145

Although the Crown is charged with the management of water, it also does not 'own' the physical water. Water continues to be regarded legally, economically, and socially as a public good, owned by everyone and no-one, with the Crown holding only the 'rights' to water.146 These rights may then be allocated to individuals in the form of a resource consent. In the limited situations where there is a rule in a plan permitting water usage, a consent may not be necessary for rights to be conferred. There has also been a change in terminology: while the Water and Soil Conservation Act 1967 referred to the granting of 'water rights', the RMA now describes them as 'water permits'. 'Permit' is a weaker term than 'right', inferring a lesser sense of entitlement or claim. This legislative change appears to recognise that the grant of a resource consent for water simply provides permission for its holder to do what would otherwise be unlawful, and does not have the same overtone of a property interest.

The RMA explicitly declares that 'a resource consent is neither real nor personal property'.147 But even so, in some ways consents do behave like property rights. They are enforceable, vest in the personal representative of the holder upon death,148 are treated as personal property for the purposes of the Protection of Personal and Property Rights Act 1988,149 and a charge may be granted over them.150 But these rights are not pure. They are limited in various significant ways including their duration and the potential imposition of conditions. Consents also do not guarantee water availability and it has generally been accepted that there may be later upstream grants.151 Water is an unpredictable resource and if flow rates drop too low there is the possibility for authorities to either activate any flow conditions attached to the consent or to exercise their emergency powers of suspension.152 Even within the context of a permit transfer, an authority retains the ability to alter any conditions.153

The greater use of trade immediately opens up issues concerning property rights in water, and whether a shift is needed towards increased water ownership for market based systems to function. Ownership is a difficult concept to define in law. Theorists frequently describe property as amounting to a 'bundle' of rights, with no single right being determinative of ownership.154 Some of the frequently cited elements of property include: the power to sell or give a thing, exclusive control over a thing, the right to use the thing and income derived from it and the ability to prevent others from gaining these benefits, the lack of any term on its duration, and the ability to enforce these elements.155 There are also certain corresponding duties, including refraining from any harm its use may cause, and potential liability for judgments to be issued against it.156

The RMA is a consent rather than an ownership regime, meant to control the effect of the use of resources rather than any rights to them.157 It has generally been accepted in New Zealand that individual water rights are more akin to use rights than private property rights. The decision in Aoraki Water Trust v Meridian Energy Ltd158 has slightly confused this situation. Here, the High Court held that a water permit amounted to a 'license plus a right to use the subject resource'.159 The grant of this use right extended to an exclusive right to the water in Lake Tekapo. This prevented other parties from gaining access to water that had already been allocated, unless it had been specifically authorised by the RMA. However, Meridian's consents related to water arriving at a particular point in the water body. The exclusivity principle accepted by the Court effectively means that all the waters in the lake, and even potentially the waters upstream, were protected from any further allocation.160 Any reduction in the flows exiting Lake Tekapo (which were used for hydroelectric power generation) would reduce the value of Meridian's consents.161

The Court's approach is not particularly clear, largely due to the exclusivity element that was used in analysis. If water remains regarded as a common pool resource, owned by everyone and no one, it is difficult to maintain a claim of exclusivity prior to the point of capture or withdrawal.162 But this is effectively what the Court held. It also seems to be in potential conflict with the principle that a resource consent cannot guarantee water availability. Without mentioning ownership specifically, the Court seems to have skirted the edge of the ownership concept and hinted at various ownership characteristics. Andrew Hayward describes the Meridian permits as 'qualitatively equivalent to property rights'.163

It is not yet clear what effect the Aoraki decision will have. Nevertheless, a water permit does have a value, and the nature of the rights associated with it will affect the behaviour of its holders.164 For a water market to be operable, it is not necessary for water to be privately owned with full property rights vested in the seller. Markets can and do proceed with the trade of use rights: the tradable rights being usufructuary and the water resource continuing to be public property.165 In one report prepared for the Ministry of the Environment and the Ministry of Agriculture and Fisheries it was said that the key issue was not the ownership of the resource itself, but the ownership of the rights to use the resource.166 This is probably a better way to approach the issue, as it is not a very big step away from the current state of affairs. Some commentators consider that property interests in water use already exist,167 but the situation has been somewhat unclear. Under the current legislation, any recognition of property interests in use rights would seem to run up against the non-property declaration in s 122 of the RMA, since a right to use the resource is in many ways equivalent to a resource consent. One of the guiding principles of the Freshwater Review is for water to continue to be managed as a public resource, and this pre-empts any possible ownership of the water itself.168

The arguments in this area are reminiscent of the issues encountered under the Crown Pastoral Lands Act 1998 and the question of whether a pastoral lease amounts to a lease or a license. As with pastoral leases, the definition of rights surrounding water may have implications upon aboriginal title for Maori. They are also certain to have implications for the powers that an authority can then exercise over water bodies and any compensation offered as a result. The lease/license debate for pastoral leases remains unsettled in New Zealand, but what it points to in the water context is that use rights must be well defined, secure and enforceable. The rights must be both strong and pure enough to assure a buyer that a defined value (the water) will result from the trade, and not be subject to unjustified interference.169 Rights should be made as pure as possible while allowing for environmental sustainability. This is a balancing exercise: too many obstacles will impede efficient market operation, but oversight is necessary in certain situations. With well-defined use rights, everyone must know what is being traded, what adjustment may occur if circumstances change, and who will bear the risks of this. Accompanying this needs to be an efficient register of such property rights, so that changes in ownership can be effectively recorded, and the significant financial interests of owners, lenders, and other parties with an interest in such rights can be entered and protected.170

VII. MARKETS AND SUSTAINABILITY: THE PROTECTION OF ENVIRONMENTAL BOTTOM LINES

The use of economic instruments could lead to difficulties in meeting sustainability requirements. If an extended water trading regime emerged under the RMA, it would have to comply with the Act's overall philosophy of sustainable management. Meeting this requirement depends upon the structure of the market and how much regulation is included within it. The present regime remains top-heavy in terms of the involvement of local authorities. Assuming that something akin to a cap-and-trade regime was employed, it is expected that authorities could remain involved to a greater or lesser extent. A balance would need to be struck as to where optimal involvement is reached, since retaining control at a governmental level will reduce the flexibility of the trading regime for individuals.

A capped system requires an upper limit to be set for a resource, with trading occurring beneath this. There is a direct correlation to s 5 of the RMA, since overseas water markets that use the cap and trade model have established their caps according to sustainability criteria.171 It also has many similarities to the environmental bottom line concept, meaning that regional councils are well placed to establish caps on water usage. The setting of environmental baselines under the RMA has developed as a de facto routine rather than a legal requirement. In the water context, they involve regional councils specifying river flows or aquifer levels or pressures which must not be contravened when consents are issued. The purpose of these is to protect environmental and other instream values, while allowing the use of water down to a theoretically sustainable level. Most regional councils accept the need for minimum flows, and they are recognised as one of the functions of regional councils.172

However, there are serious difficulties in determining environmental bottom lines for water resources. Lack of information is a major constraint, as an informed decision requires information concerning all instream and out of stream values for the particular water resource concerned, and the existing and future demands for both.173 But even with good information, the entire practice of setting bottom lines to safeguard environmental and instream values has been criticised as a 'simplistic representation of reality'.174 As abstraction increases, so does the risk to the environment, regardless of the minimum flow needed to sustain a water body. Increasing abstraction also means that minimum flows will be reached more regularly and occur for longer periods. The damage that this may cause to ecosystems may be irreversible. But even without any abstraction whatsoever there is some risk of low flows during dry years. Some water ecosystems may be resilient to low flows, or even occasionally to no flows. Furthermore, some variation in flow rates is often important for the health of a water resource, and it is important that high flows that would otherwise dislodge obstacles, silt and vegetation are not entirely diverted into water schemes.175

Given all these variables, a single 'safe' level of abstraction is almost impossible to determine. It can be regarded as a socio-political decision requiring a judgment call between the demands on the water.176 The interpretation of any data relied upon in the process is therefore a contentious issue, and the validity of prescribed flow rates are frequently appealed to the Environment Court or challenged at resource consent hearings.177 Information gaps may also mean that councils are reluctant to impose restrictions on potential users.178 Meanwhile, scientific knowledge is continually evolving, and if it is found that a plan has established minimum flows that are too low or has failed to establish minimum flows at all, a plan change must be made to rectify it. But the RMA is silent on issues of scientific uncertainty, and there are presently no requirements for an authority to make such changes. This is an area where national guidance is needed. Without this, a private plan change must be made, which requires effort and expense. It is also unlikely to occur unless an environmental group is especially concerned about the particular water resource involved.

Although there are definite problems with environmental bottom lines, the lack of these limits in planning instruments creates a greater danger than their absence. If water trading were to increase, the framework needs to incorporate the robust protection of environmental values.179 It has been suggested that the increased information required within a trading regime will have a positive effect upon the setting of minimum flows.180 The process for their establishment needs to be transparent, and with an equitable means of adjustment either up or down if this should be required.181 A National Policy Statement would be a good first step in this regard, establishing processes for the setting of minimum flows. It would also ensure that requirements for minimum flows become part of the legal regime instead of a voluntary component of planning. All planning documents must comply with National Policy Statements since they are at the top of the planning hierarchy.

There is a fear that if water trading takes off, minimum flows will be triggered more frequently. In some ways this is a danger of the efficiency encouraged by a market. More allocated water is likely to be used or abstracted since permit holders have an incentive to trade water they are not using and which previously had little value. Others will then presumably use this water instead of it remaining instream. This has been seen in Australia, where a large number of 'sleeper' (unused) or 'dozer' (only partially used) permits quickly entered onto the market.182 As with the scientific uncertainties concerning minimum flows, a more precautionary approach may be suitable here. The precautionary principle makes allowance for uncertainty in regulating environmental risks and the sustainable use of natural resources. It does not appear in the RMA, and its absence from the government review has been criticised.183 It could be incorporated, either directly within the legislation (a stronger position as this would apply to all decision-making), or within any National Policy Statement concerning environmental bottom lines in the water context.

VIII. REVIEW POWERS

Claw-back and Compulsory Repurchase

The claw-back or compulsory repurchase of water permits becomes an issue if a water body is over-allocated and causing damage to environmental values. To manage this eventuality, acquisition powers might be necessary for authorities to reclaim water permits. Claw-back powers create uncertainty for investors within a trading regime.184

Because most New Zealand water bodies are not yet fully allocated, this is unlikely to be a serious issue, at least initially. There is power under the RMA for councils to issue a water shortage direction under s 329, limiting takes on a temporary basis. This extends for a maximum of 14 days, although it can be renewed. Although this power is rarely used at present, its use may increase if minimum flows are reached more often. It is suggested that minimum flows should be set in a precautionary fashion to guard against this likelihood. It is also suggested that more councils adopt defined rostering arrangements which begin to restrict use as minimum flows are approached. This will help to prevent the blanket suspension of water rights when scarcity begins to bite.

Time Limits

New Zealand's permits are time-limited to a maximum of 35 years.185 There has been a suggestion that once rights are allocated, a market framework can account for all later reallocations, and permits can effectively become indefinite. Time limits upon permits do not necessarily encourage long-term investment concerning water resources. But although indefinite rights would be beneficial for investment security, they may be socially undesirable. As is currently occurring with the FIFS principle, this means that review processes are potentially minimal. Retaining the current s 136 means that review is compulsory upon any transfer of the permit, as the consent authority is able to consider all the s 104 elements afresh. This helps to ensure compliance with sustainability requirements. It also helps to provide a forum for adversely affected third parties to be heard. A compromise position is perhaps is to grant permits for a more significant duration.186

Compensation

Compensation issues are likely to emerge in two main situations within a trading regime. Firstly, if a set of use rights are clearly defined in relation to water and are regarded as property, compensation is likely to become far more prominent if the permit is adversely affected by other decisions made under the Act. Secondly, if regulatory authorities retain the ability to reduce entitlements in certain circumstances, permit holders are likely to claim compensation from the authority for the loss of any water as a result of this. This is especially so if there are investment-based expectations of continued access.187 The provision of compensation is effectively an attempt to mediate between the rights of individuals and the power of environmental governance invested in the state.188

The RMA is not accompanied by compensation for anyone who is adversely affected by the grant of rights or any restrictions made under it.189 The regulation of land use by the Crown has always been permitted without providing compensation, and has been regarded as a power of the state.190

There are no direct references in the RMA to compensation concerning water permits or resource consents. Instead, the main compensation-related section in the Act is s 85, which states the general principle that an interest in land shall be deemed not to be taken or injuriously affected by a restriction under the RMA, unless it is provided otherwise. Compensation is thus not payable in respect of controls relating to land. There is limited relief under s 85(2) allowing a challenge to be made to the Environment Court to determine whether the land is incapable of reasonable use and the controls have placed an unfair or unreasonable burden upon those with an interest in the land.

Despite the lack of direct reference in the RMA to compensation concerning water, it is to be expected that the same principles would apply. In Auckland Acclimatisation Society v Sutton Holdings Ltd,191 the Planning Tribunal had allowed the grant of a water right for the draining of a wetland. Barker J was strongly influenced by the principle that a statute should not take away private rights without compensation and would require very clear words to do so.192 On appeal, Cooke J refused to incorporate this principle in the context of water rights due to its restricted scope in planning law and the restrictive presumptions in place over water use. The landowner did not have rights to water alongside the ownership of the land, and therefore there could be no expectation of compensation.193

Compensation arguments have been developed far more extensively in countries with written constitutions. In America this is referred to as a 'no takings' regime, and has developed in light of the 'just compensation' provisions of the Constitution.194 New Zealand has no written constitution, but a quasi-constitutional argument was advanced in Falkner v Gisborne DC195 involving s 21 of the New Zealand Bill Of Rights Act 1990. This section concerns unreasonable search and seizure. In the context of coastal erosion, a group of residents argued that the council's change of policy to one of 'managed retreat' from the coastal land resulted in a 'seizure' of the land, because land lost to the sea vests in the Crown.196 Claims under the Bill of Rights Act have recognised damages,197 but the Court in Falkner was unwilling to apply these to real property. Barker J said that the RMA provided a coherent scheme in which 'the concept of sustainable management takes priority over private property rights'.198

Compensation has also been debated vigorously in Australia. The Australian Constitution refers to the 'acquisition of property on just terms',199 and there have been suggestions that this phrase mandates compensation.200 The Australian approach under the 2004 National Water Initiative is for water users to be fully compensated when water availability is affected by policy changes, to be partially compensated for changes made within a catchment as a result of new scientific information, and to be uncompensated for changes due to drought or climate change.201

In principle, if certain property rights are recognised concerning water, compensation should flow if they are interfered with, and the Australian example could provide guidance for New Zealand. Budgetary concerns are a further problem. Some form of additional environmental tax may be appropriate, such as an increase in the annual monitoring charges attached to water permits.

Conditions

Water permits are frequently issued with conditions attached, and these carry over to a new permit holder if a permit is transferred.202 The authority must currently approve a transfer, and may reconsider the consent conditions and even grant new conditions if this is considered necessary.203 There has been an increasing trend towards conditions that allow an authority to review elements of the consent. To provide a water example, there may be a change in circumstances that requires a minimum flow rate to be altered. Consent conditions in general and review conditions in particular may impede the transfer of water permits, as they affect the security of the water right.204 This is a challenging factor to incorporate into a market system. While security is important, the potential for change in water availability means that there does need to be some form of oversight. This is particularly necessary to satisfy environmental values.

If and when water becomes scarce, it would appear that permit holders will simply be forced to accept the presence of conditions and their potentially limiting effect upon water allocations. If there are no other options for sourcing water, demand for water will presumably outweigh these factors, even though they are currently seen as barriers to transfer. Another possibility is for guidelines to be provided to regional councils to suggest conditions that are regarded as acceptable. This might reduce the litigation that currently surrounds conditions and ensure that authorities are not imposing unnecessary restrictions. The establishment of a 'best practice' guide for consent structures and conditions was recommended as part of the Freshwater Review.205

A question mark currently exists over the use of conditions to review the permitted quantity of water itself, or to fill major gaps after a resource consent has been approved 'in principle'. The latter situation is currently being witnessed with regard to Trustpower's proposals for a hydroelectric scheme on the Wairau river. There is not yet a body of case law concerning these particular situations, although the Wairau project is set to be appealed.206 There are no statutory limits upon conditions, but requirements have developed at common law. The English case of Newbury DC v Secretary of State for the Environment,207 since endorsed in New Zealand,208 establishes some requirements, one being that the condition must fairly and reasonably relate to the proposal subject to consent. This suggests that a condition cannot form a substantial component of the water permit proposal itself, as this is not 'reasonably related to the needs of the proposal' but is the actual proposal. This appears to be consistent with the list of possible conditional elements listed in s 108(2) of the Act, which provide for subsidiary matters rather than matters central to a consent. It is suggested that conditions should only be acting as fine-tuning mechanisms.

The use of conditions to provide for crucial elements of the consent may also be out of line with the objectives of the consents themselves. Having a water permit amount to effectively a statement of policy and supplementing it with various conditional requirements is less likely to achieve the intended result. It also potentially goes against integrated management principles and even sustainable management, particularly the requirement to safeguard the life-supporting capacity of water.209 It is suggested that a proper approach is for authorities to control water allocations methodically through the resource consent itself rather than substituting this with conditions. Transparency in decision-making and an appropriate level of detail in the permit are also necessary in order for permits to be appropriately enforced.

IX. INTEGRATED MANAGEMENT

The RMA provides for an integrated approach to resource management. It replaced a wide range of statutes concerned with individual resources, bringing them all under one umbrella and a single sustainable management purpose. It is regional and territorial bodies that are charged with putting integrated management into practice, largely through their planning and policy instruments.210 Like sustainable management, integrated management is a somewhat elusive concept, and remains legally undefined in the Act. It recognises the interconnected nature of environmental and planning issues and infers a degree of flexibility to take account of changing requirements. Ulrich Klein argues that it draws upon two streams of thought: ecological rationality and strategic thinking,211 and requires integration at both a substantive level in terms of the values being sought, and at a process level in terms of the way decision-makers go about their tasks.212

The role of regional councils concerning integrated management extends further than water, encompassing the 'natural and physical resources of the region'.213 One of the difficulties in achieving effective water management is integrating water management with the management of land. Ultimately it is activities on land that have the greatest effect on water, and this is demonstrated by the land use changes that are underway over large tracts of New Zealand. Primary responsibility for land use and subdivisions rests at the territorial authority level. Furthermore, the permissive presumption regarding land use means that there is less oversight concerning land unless specific monitoring has been required by a district plan or resource consent. Regional councils do have the ability to control land uses for certain specified purposes, including the maintenance and enhancement of the quality and quantity of water in water bodies,214 and the maintenance and enhancement of ecosystems.215 But these powers are seldom used.216 Raewyn Peart advocates the greater use of planning and policy instruments at the regional council level to influence land uses that affect water and are decided at the district level.217 The planning hierarchy means district plans must not be inconsistent with regional instruments.

An increase in the trade of water permits has a direct affect upon this integration, because to be traded, permits must be distinct from the land. The limited trade that has resulted so far has largely involved a single water use, such as between irrigators in a catchment. But if trading is to be effective on a larger scale it will need to be extended beyond this. Keeping permits separate from land uses means that any integration between water and land planning becomes even more tenuous.

It is also important to recognise that the volume of water within a water body is connected to its water quality. Decreasing flow decreases the capacity of a water body to absorb discharges without permanent damage.218 Water quality issues formed part of the Freshwater Review, and one suggestion has been the use of tradeable permits for discharge consents.219 Allowing trade for both water and discharge permits might have positive effects on integration between these two issues. Since tradeable permits require open information channels, one possibility would be to ensure the sharing of information between all water users including those who obtain discharge permits.

Education programmes form a part of an integrated approach. There is currently a shortage of money at the council level for engaging in these types of proactive policies. Councils are also restricted from gathering funds for this purpose via the resource consent process, as they may only recoup the costs of responding to applicants.220 Increased funding for these would be beneficial, as it would allow councils to provide better information on topics such as possible technological improvements that could be made. This would flow into improvements in water usage efficiency. At present there are very few people with the ability to work across and integrate various values - social, economic, environmental, and cultural - in both policy and decision-making.221 Education could similarly help here.

X. NATIONAL GUIDANCE

There is presently a dearth of national guidance concerning the management of water resources. All allocation procedures for water have advantages and disadvantages, and there is a real need for national guidance over an area that is undoubtedly problematic. While the devolution of responsibility to local or regional levels is positive in many ways, it has forced authorities to interpret and apply the RMA themselves. To date, central government has left local authorities to muddle through the difficult decisions. While provision needs to be made for regional flexibility, it is also necessary to ensure an overall consistency. This becomes even more crucial when tradeable rights enter the picture, as rights-holders need to carry out their trading within a clear framework. Commentators have suggested that the Act would be 'greatly enhanced by the addition of measureable goals and standards'.222

Happily, this is one policy proposal that emerged strongly from the Freshwater Review. Although it will not be a complete panacea, it will at least define some of the processes and provide some clarity on certain issues. It will help regional councils to carry out their responsibilities under the RMA, including the interpretation of sustainable management as it pertains to water resources.223 Regional government presently has much discretion in this. It will also help to smooth out present inconsistencies in allocation decision-making that occur between regions. Councils presently vary in their commitment in plans to protecting water, and regions lacking a water plan deal with water resources in an ad hoc manner.224 Providing this leadership will better help to address some of the fragmentation that has occurred.

The government is also looking at a national policy statement for water measuring devices.225 Gathering information on how much water is actually being used is essential for efficiency in water management and the understanding of water resources for the setting of minimum flows. National policy guidance will again ensure consistency in the approach towards water measurement. As discussed, information is also crucial to a market system to allow assessment of transaction benefits. It is also a positive development in terms of the integrated management of water resources, and will help in ensuring compliance.226

The provision of national policy will undoubtedly be helpful, but a caution should also be offered. The dynamic nature of water resources necessitates ongoing review, and national policy should also undergo this process.

XI. OTHER WAYS TO IMPROVE EFFICIENCY

Greywater

While market mechanisms provide one way to pursue efficient water allocation and usage, there are other methods which could further supplement water management regimes. There has been little encouragement provided for the innovation of new technology or other solutions to address water demands. One example of this is greywater, which is currently treated as a waste product. Greywater is generated from domestic uses such as laundry, bathing, and washing dishes. It may be reused in settings where potable water is unnecessary, such as for flushing toilets or watering the garden, and also may be used on a larger scale for irrigation purposes. Despite its reuse value, there is no official greywater reuse in New Zealand.227 A shift in thought and policy could treat greywater as a resource of its own, thus helping to decrease pressure upon water supplies. Considering both water supply and wastewater jointly is very much in line with principles of integrated resource management.228 Domestic water use is increasing, creating a corresponding increase in greywater; as such, this is one water resource that is increasing in supply.

The Ministry of Health does not currently advocate the reuse of greywater. It is true that care needs to be taken to prevent contamination, especially if greywater is used for garden irrigation. But this can be overcome, either through education, monitoring or regulation, or a mixture of the three. The establishment of a greywater system on a large scale would require significant investment, as well as initial research funding. Because authorities are constantly under pressure to minimise costs, large projects are unlikely in the near future.229 Domestic water usage currently comprises only 11 percent of all water usage in New Zealand,230 but investment may become more viable as water scarcity rises. Some industrial water might also be suitable for reuse, contributing up to a further 9 percent of water usage.231 Without pursuing large scale projects, authorities might also be able to encourage greywater systems on a smaller scale, such as within new housing developments. As has occurred in Christchurch with the 'Clean Heat' project, subsidies or incentives could be provided for the installation of greywater systems. If domestic water use became subject to a monetary charge in the future, the popularity of greywater schemes may increase.

A Return to Command and Control?

After careful consideration, it may be decided that increasing the use of market mechanisms as an allocation tool will generate too many potentially negative effects, and have an inadequate layer of control to guard against them. One option would then be to turn back towards command and control systems, but to provide them with an increased ability to make decisions according to efficiency or other values. This approach has been attempted in the Waitaki catchment under the Resource Management (Waitaki Catchment) Amendment Act 2004. This established the Waitaki Allocation Board, which was to develop a regional plan for the allocation of water in that catchment. Some of the usual RMA procedures were bypassed in this process232 and the overall philosophy shifted away from first-in first-served. Instead there is a whole catchment approach,233 and the 'calling in' of all significant water permits in the catchment to be assessed and dealt with alongside the general policy. The merits of individual permits are being considered, and they are assessed alongside other applications to provide an understanding of how applications 'fit together'.234

It is too early to judge the success of this alternative regulatory approach. The Waitaki regional plan became fully operative in July 2006, and cannot be reviewed by the Canterbury Regional Council until it has been operative for two years.235 It is a project that will be examined carefully in terms of its future potential for other areas.

There are certain advantages of regulation. There is familiarity with it at an administrative level, and the necessary institutions are already formed. Despite the advantages of market approaches, it may be that there are simply too many exterior effects to manage or account for within the regime, both anticipated and unanticipated. These might occur at an economic level within the market, or upon the environment, or even upon society as a whole. If regulatory methods can be overhauled and improved, they could perhaps provide a viable alternative. Although they would not reach the same level of efficiency as a market, the inclusion of water pricing (as opposed to trading) would provide some market incentives. One of the major problems with retaining regulation is that it has an inevitable political component once authorities are charged with making decisions between competing applications.236

XII. STILL MANY QUERIES

General

Many queries remain concerning market approaches to water, and much more research is necessary. One of the fundamental concerns is whether placing a value upon water is economically possible. Some water uses are reflected poorly in market transactions, particularly intangible factors such as aesthetic, cultural, recreational, and wildlife elements.237 Effects upon these must still be accounted for within a market structure. There is a similar challenge in providing for equity concerns, including equity for future generations, since markets are generally focused towards short-term goals.

Maori Concerns

There may be Maori concerns if changes are made to the water management framework. Maori are regarded as having special interests under the RMA, and these need to be taken into account during decision-making.238 But unresolved issues remain in some areas, including the relationship between the RMA and Maori concepts of ownership and possession.239 Maori perceptions of water are entwined with cultural values, with water believed to have a life force (mauri) and a spirit (wairua).240 The Freshwater Review has recognised the importance of building partnerships with Maori.241 Providing Maori values with appropriate weight within a trading regime is one area that will require further consideration.

Initial Allocations

The inclusion of already allocated permits into a market system is a major design issue. The usual technique is to determine them according to historical usage, thus protecting investments that existing permit holders have made in relation to the water. This is commonly known as 'grandfathering'.242 It has raised other equity concerns, as it may allow someone to apply for a permit cheaply on a first-in first-served basis, and then sell or lease it for considerable profit later.243 Alternatively there may be an auction of permits, to allow non-permit holders the chance to get into the market immediately. This option provides a 'clean slate' for all potential permit holders, but provides no recognition of prior investment. The efficiency gains that an auction will achieve are also somewhat irrelevant, since once an initial allocation has been made, the market will then begin to determine efficiency.244

Making initial permit allocations in a market system is difficult when a resource is already overallocated, since some allocated water will need to be excluded. Dormant or sleeper permits also need to be factored in. These stresses are not particularly serious in New Zealand but have been witnessed in Australia. They provide further reasons for establishing robust minimum flows, and for the contemplation of market mechanisms well in advance of full allocation levels.

XIII. CONCLUSIONS

This has been a necessarily brief survey of tradeable water permits, the myriad issues they raise, and the increased role they could play within a reformed water allocation regime in New Zealand. There are still a huge number of issues to be worked through before the lid is lifted on any market mechanisms. But it is clear that we no longer have the luxury of managing water as we have in the past and will be forced to look to new methods. The current allocation system under the RMA has various faults, notably its lack of flexibility. As water starts to become scarce, it lacks efficiency and equity in distinguishing between users.

Water touches virtually every aspect of life, and cannot be regarded as an ordinary commodity. It is unique in that it is not only valuable for its own sake but has a wide range of environmental, recreational, health, cultural, and economic roles, and is shared by multiple users.245 This makes it a particularly challenging resource to manage, as there are so many pressures, demands and effects of decision-making across all sectors of society. Hopefully this paper has conveyed a sense of the sheer complexity involved. For almost every benefit gained within an individual policy, there seems to be a corresponding disadvantage or uncertainty somewhere else within the web of environmental, economic, or social effects. It is for this reason that water requires a high level of integration across all of these elements.

No water management regime is going to be perfect. The best hope is to strike a balance that addresses the various concerns in the best way possible, in light of a society's ability to manage such a regime effectively. This paper has argued that an increased market approach would provide a further tool to do so. Because we live in an increasingly market-driven society, economic mechanisms have the ability to shift behaviour more effectively than purely regulatory approaches. Harnessing economic power to serve sustainable management is a positive development. New Zealand should look into and begin to establish these mechanisms earlier rather than later, as they will be much easier to implement before water resources reach full allocation.

However, markets should be viewed as a means to an end rather than an end in themselves,246 and as part of an overarching policy approach rather than a substitute for it. The cap and trade model provides a good starting point for the development of a New Zealand water market under the philosophy of the RMA. Water should not always flow towards money, and there is still a crucial role for regulation, especially in safeguarding environmental values. Alongside the use of markets, this paper has also argued for the inclusion of other innovative approaches as part of future water management, such as the increased use of greywater. More generally, there is the need to recognise water as a precious and finite resource. New Zealand is relatively lucky in its water supplies, but 'blue gold' is set to become a defining environmental issue of the twenty-first century. Market mechanisms should be investigated further as possible design features of a reformed regime for this most complicated and delicate of resource management issues.


[*] BA, LLB(Hons).

[1] Benjamin Franklin, Poor Richard's Almanack (1746).

[2] C E Hunt, Thirsty Planet: Strategies for Sustainable Water Management (2004) 41.

[3] Ministry for the Environment, Freshwater for a sustainable future: issues and options (December 2004) <http://www.mfe.govt.nz/publications/water/freshwater-issues-options-dec04/freshwater-issues-options-dec04.pdf> .

[4] Ministry for the Environment, Freshwater for the future: a supporting document (April 2006) <http://www.mfe.govt.nz/publications/water/freshwater-future-supporting-doc-april06/ freshwater-future-supporting-doc-april06.pdf> .

[5] A number of thoughtful articles have been published on the topic quite recently, and have been most useful to my research. Foremost among these are: A Hayward, 'Freshwater Management: Water Markets and Novel Pricing Regimes' (2006) 10 New Zealand Journal of Environmental Law 215; K G Counsell and L T Evans, 'Essays on Water Allocation in New Zealand: The Way Forward' (Working paper for the New Zealand Institute for the Study of Competition and Regulation, 2005), available via <http://www.iscr.org.nz/n174.html> at 14 April 2008. Numerous reports from the Ministry for the Environment have also been very helpful, although their treatment of tradeable water rights has not yet been comprehensive. These are accessible through the Ministry for the Environment website, <http://www.mfe. govt.nz/publications/water/html> or in hard copy from the Ministry. Because they are policy-oriented they are somewhat less readable than the above articles. These sources will all be referred to throughout this paper.

[6] Freshwater for the future: a supporting document, above n 4, 20.

[7] Ministry for the Environment, Water Programme of Action: Water Allocation and Use (June 2004) <http://www.mfe.govt.nz/publications/water/water-allocation-use-jun04/water-allocation-use-jun04.pdf> , 6.

[8] M Doak, 'Water Markets' (Paper presented to Water: The Lifeblood of New Zealand, The Allocation of Freshwater Conference, Wellington, 23 July 2002), available at: <http://www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/water-efficiency/water-conference/water-conference-05.htm> at 13 April 2008.

[9] N Peart, 'Innovative Approaches to Water Resource Management: A Comparison of the New Zealand and South African Approaches' (2001) 5 New Zealand Journal of Environmental Law 127, 133.

[10] Resource Management Act 1991, s 30(1)(e).

[11] Resource Management Act 1991,s 30(1)(e)(i)-(ii).

[12] Resource Management Act 1991, s 30(1)(fa), 30(4).

[13] Resource Management Act 1991, s 30(1)(f)-(fa).

[14] Resource Management Act 1991, s 65(1).

[15] R Harris (ed), Handbook of Environmental Law (2004) 228.

[16] Resource Management Act 1991, s 24(a).

[17] Resource Management Act 1991, s 24(b).

[18] Resource Management Act 1991, s 43-4.

[19] Resource Management Act 1991, ss 59-62.

[20] Resource Management Act 1991, s 67(1).

[21] Hayward, above n 5, 227.

[22] Harris, above n 15, 227.

[23] Water Programme of Action: Water Allocation and Use, above n 7, 7.

[24] Resource Management Act 1991, s 5(1).

[25] Resource Management Act 1991, s 5(2).

[26] Hayward, above n 5, 223.

[27] P A Memon, 'Freshwater Management Policies in New Zealand' (1997) 7 Aquatic Conservation: Marine and Freshwater Ecosystems 305, 309.

[28] Resource Management Act 1991, s 6.

[29] Resource Management Act 1991, s 7.

[30] Resource Management Act 1991, s 8.

[31] Resource Management Act 1991, s 6(a).

[32] Resource Management Act 1991, s 6(e).

[33] Resource Management Act 1991, s 2.

[34] Resource Management Act 1991, s 14(3).

[35] Resource Management Act 1991, s 9.

[36] Resource Management Act 1991, s 77C.

[37] Resource Management Act 1991, ss 77B(4), 77C.

[38] Resource Management Act 1991, s 87(d).

[39] Resource Management Act 1991, s 88(2).

[40] Resource Management Act 1991, s104B.

[41] Resource Management Act 1991, s 93(1)(a).

[42] Resource Management Act 1991, s 93(1)(b).

[43] Resource Management Act 1991, s 96.

[44] Resource Management Act 1991, s 94.

[45] Resource Management Act 1991, s 94B(3)(a).

[46] [1997] 3 NZLR 257.

[47] Ibid 261.

[48] Ibid 264-5.

[49] [2004] NZHC 820; [2005] 2 NZLR 268.

[50] Ibid 278.

[51] Ibid 277.

[52] Ibid 282.

[53] Ibid 284.

[54] Resource Management Act 1991, ss 140-150AA.

[55] Resource Management Act 1991, s 68(7).

[56] Resource Management Act 1991, s 128(1)(b).

[57] Resource Management Act 1991, s 128(1)(a)(i).

[58] Resource Management Act 1991, s 128(1)(a)(iii).

[59] Resource Management Act 1991, s 123.

[60] Ministry for the Environment, Resource Consent Durations and Reviews (September 2000) <http://www.mfe.govt.nz/publications/rma/resource-consent-duration-reviews-sep00.pdf> , 16.

[61] Ibid 13-14, 22.

[62] Resource Management Act 1991, s 124A.

[63] Peart, above n 9, 153.

[64] J Huang, 'Finding Flow: The Need for a Dynamic Approach to Water Allocation' (2006) 81 New York University Law Review 734, 749.

[65] L Burton and C Cocklin, 'Water Resource Management and Environmental Policy Reform in New Zealand: Regionalism, Allocation, and Indigenous Relations: Part 1' (1996) 7 Colorado Journal of International Environmental Law and Policy 75, 104.

[66] Resource Management Act 1991, s 5(2)(c).

[67] Resource Management Act 1991, s 5(2)(a).

[68] Freshwater for a sustainable future: issues and options, above n 3, 3.

[69] Ministry for the Environment, Snapshot of water allocation in New Zealand (November 2006) <http://www.mfe.govt.nz/publications/water/water-allocation-snapshot-nov06/water-allocation-snapshot-nov06.pdf> , ix.

[70] Ibid x.

[71] Ibid.

[72] Doak, above n 8.

[73] Ibid.

[74] Water Programme of Action: Water Allocation and Use, above n 7, 9.

[75] C McLellan, 'Water allocation in New Zealand — A role for trading of water permits?' (1998) Survey carried out for the Hawkes Bay Regional Council and Victoria University, cited in Lincoln Environmental, Information on water allocation in New Zealand (April 2000) <http://www.mfe.govt.nz/publications/water/water-allocation-apr00.pdf> , 35.

[76] Freshwater for the future: a supporting document, above n 4, 16.

[77] Harris, above n 15, 210.

[78] Freshwater for the future: a supporting document, above n 4, 3.

[79] Harris, above n 15, 210.

[80] Ibid.

[81] [2004] NZHC 820; [2005] 2 NZLR 268.

[82] Hayward, above n 5, 246.

[83] Water Programme of Action: Water Allocation and Use, above n 7, 10.

[84] Memon, above n 26, 318.

[85] Water Programme of Action: Water Allocation and Use, above n 7, 10.

[86] Aoraki Water Trust v Meridian Energy Ltd [2004] NZHC 820; [2005] 2 NZLR 268, 284.

[87] Ibid 276.

[88] See below Part VI.

[89] Water Programme of Action: Water Allocation and Use, above n 7, 7.

[90] Information on water allocation in New Zealand, above n 75, 35.

[91] Counsell and Evans, above n 5, 16.

[92] See Resource Management Act 1991, s 329, concerning water shortage directions, and below Part VIII.

[93] S Powell, 'Water Through a Sustainable Development Lens' (Paper presented to Aqua Vitae Water of Life, 11th Annual Resource Management Law Association Conference, Blenheim, 9-12 October 2003).

[94] Resource Management Act 1991, s 5(2).

[95] Counsell and Evans, above n 5, 115.

[96] Ministry for the Environment, Water Allocation: A Strategic Overview (May 2001) <http:// www.mfe.govt.nz/publications/water/strategic-paper-may01.pdf> , 3.

[97] Ibid.

[98] Ibid.

[99] Hayward, above n 5; Peart, above n 9, 148.

[100] Counsell and Evans, above n 5, 17.

[101] Ibid 25.

[102] B Haddad, Rivers of Gold: Designing Markets to Allocate Water in California (2000) 25.

[103] Peart, above n 9, 153.

[104] Water Programme of Action: Water Allocation and Use, above n 7, 10.

[105] L Burton and C Cocklin, 'Water Resource Management and Environmental Policy Reform in New Zealand: Regionalism, Allocation, and Indigenous Relations: Part 1I' (1996) 7 Colorado Journal of International Environmental Law and Policy 331, 366.

[106] R Griffin, Water Resource Economics (2006) 1.

[107] Haddad, above n 102, 21.

[108] Ibid 26.

[109] Ibid.

[110] A Meister and B Sharp, Current and Potential Uses of Economic Approaches to Environmental Management (1993) 6.

[111] Ministry of Agriculture and Fisheries, Economic Efficiency of Water Allocation (November 2001) <http://www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/water-efficiency/ economic-efficiency-of-water-allocation/water-allocation-technical-paper-7.pdf> , 1.

[112] F Segerfeldt, Water for Sale (2005), 45.

[113] Economic Efficiency of Water Allocation, above n 111, 12.

[114] Ibid 4.

[115] B Brunette, 'Freshwater Management and Allocation under the Resource Management Act 1991: Does First-in First-served Achieve Sustainable Management Principles?' (2006) 10 New Zealand Journal of Environmental Law 169, 174.

[116] See G Hardin, 'The Tragedy of the Commons' (1968) 162(3859) Science 1243.

[117] Hayward, above n 5, 250.

[118] Resource Management Act 1991, s 5(2).

[119] S Draper, 'The Unintended Consequences of Tradable Property Rights to Water' (2005) 20 Natural Resources and Environment 49, 52.

[120] Resource Management Act 1991, 5(2)(a).

[121] Segerfeldt, above n 112, 59.

[122] Meister and Sharp, above n 110, 35.

[123] Doak, above n 8.

[124] Counsell and Evans, above n 5, 45.

[125] Ibid 65.

[126] R Banyard and A Kwaymullina, 'Tradeable Water Rights Implementation in Western Australia' (2000) 17 Environment and Planning Law Journal 315, 323.

[127] Water & Soil Conservation Act 1967, s 24A.

[128] Resource Management Act 1991, s 136(1).

[129] Resource Management Act 1991, s 136(2).

[130] Resource Management Act 1991, s 136(2)(b).

[131] Resource Management Act 1991, s 136(3).

[132] D Nolan (ed), Environmental and Resource Management Law (3rd ed, 2005) 178.

[133] Resource Management Act 1991, s 136(2A).

[134] S Shupe, G Weatherford and E Checchio, 'Western Water Rights: The Era of Reallocation' (1989) 29 Natural Resources Journal 413, 417.

[135] Economic Efficiency of Water Allocation, above n 111, 19.

[136] Ibid.

[137] Hayward, above n 5, 249.

[138] Memon, above n 27, 318.

[139] Nolan, above n 132, 453-4. See also Glenmark Homestead Ltd v North Canterbury Catchment Board [1975] 2 NZLR 71, 81.

[140] McCartney v Londonderry & Lough Swilly Railway Co [1904] AC 301, 306-7 (McNaghten LJ). Although obiter in this case, this passage of McNaghten LJ's judgment has been accepted as the classic statement upon the matter.

[141] Nolan, above n 132, 455; McCartney v Londonderry & Lough Swilly Railway Co [1904] AC 301, 306-7.

[142] Burton and Cocklin, 'Water Resource Management and Environmental Policy Reform in New Zealand: Regionalism, Allocation, and Indigenous Relations: Part 1' above n 65, 91.

[143] Water and Soil Conservation Act 1967 s 21(1); Nolan, above n 132, 461; D.A.R Willliams, Environmental Law in New Zealand (1980) 98.

[144] Willliams, above n 143, 94-5.

[145] Resource Management Act 1991, s 354.

[146] Harris, above n 15, 203.

[147] Resource Management Act 1991, s 122.

[148] Resource Management Act 1991, s 122(2)(a).

[149] Resource Management Act 1991, s 122(2)(c).

[150] Resource Management Act 1991, s 122(3).

[151] P Milne, 'Allocation of Water Between Productive Uses' (Paper presented to Aqua Vitae Water of Life, 11th Annual Resource Management Law Association Conference, Blenheim, 9-12 October 2003); Harris Consulting for the Ministry of Agriculture and Fisheries and Ministry for the Environment, Property Rights in Water: A Review of Stakeholders' Understanding and Behaviour (November 2003), <http://www.mfe.govt.nz/publications/ water/property-rights-water-nov03/property-rights-water-nov03.pdf> , 11; See also Auckland Acclimatisation Society Inc v Sutton Holdings Ltd [1985] 2 NZLR 94; Cf Aoraki Water Trust v Meridian Energy Ltd [2004] NZHC 820; [2005] 2 NZLR 268, which perhaps contradicts this. It is discussed below.

[152] See Resource Management Act 1991, s 329.

[153] Resource Management Act 1991, s136(5)(b).

[154] D Kirkpatrick, 'Property Rights: Do you have any?' (1997) 1 New Zealand Journal of Environmental Law 267, 272; K Gray, 'Property in Thin Air' (1991) 50 Cambridge Law Journal 252, 252.

[155] See Kirkpatrick, ibid 271, who lists eleven elements that he describes as the 'full liberal concept of ownership.' See also R Q Grafton et al, The Economics of the Environment and Natural Resources (2004) 38, who lists six characteristics: exclusivity, transferability, duration, quality of title, divisibility and flexibility. These six characteristics are used as a framework in Harris Consulting, Property Rights in Water: A Review of Stakeholders' Understanding and Behaviour, above n 151, 10.

[156] Kirkpatrick, above n 154, 271.

[157] Ibid 281.

[158] [2004] NZHC 820; [2005] 2 NZLR 268.

[159] Ibid 279.

[160] P Milne, 'Allocation of Public Resources under the RMA: Implications of Aoraki Water Trust v Meridian [2005] Resource Management Theory and Practice 146, 160-2.

[161] Aoraki Water Trust v Meridian Energy Ltd [2004] NZHC 820; [2005] 2 NZLR 268, 275.

[162] Draper, above n 119, 49.

[163] Hayward, above n 5, 246.

[164] Harris Consulting, Property Rights in Water: A Review of Stakeholders' Understanding and Behaviour, above n 151, 7.

[165] Ministry of Agriculture and Fisheries, A Functioning Water Market Example, (August 2002) available at: <http://www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/water-efficiency/economic-efficiency-of-water-allocation/water-allocation07.htm> at 10 April 2008.

[166] Harris Consulting, Property Rights in Water: A Review of Stakeholders' Understanding and Behaviour, above n 151, iv.

[167] Counsell and Evans, above n 5, 118.

[168] Freshwater for the future: a supporting document, above n 4, 3.

[169] Haddad, above n 102, 23.

[170] H Bjornlund and B O'Callaghan, 'Property Implications of the Separation of Land and Water Rights' (2004) 10 Pacific Rim Property Research Journal 54, 55.

[171] Haddad, above n 102, 36.

[172] Resource Management Act 1991, s 30(1)(e).

[173] S Harris, 'Economics of Water Use: Issues for Allocation' (Paper presented to Water: The Lifeblood of New Zealand, The Allocation of Freshwater Conference, Wellington, 23 July 2002), available at: <http://www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/water-efficiency/water-conference/water-conference-04.htm> at 13 April 2008.

[174] Ibid.

[175] Harris, above n 15, 233.

[176] Harris, above n 173.

[177] Water Programme of Action: Water Allocation and Use, above n 7, 9.

[178] Memon, above n 27, 317.

[179] Water Programme of Action: Water Allocation and Use, above n 7, 14.

[180] Doak, above n 8.

[181] Ibid.

[182] S Bell and J Quiggan, 'The Metagovernance of Markets: The Politics of Water Management in Australia' (Working Paper for the Risk and Sustainable Management Group, University of Queensland, 2006), available via: <http://www.uq.edu.au/economics/rsmg/working.htm> at 10 April 2008, 13.

[183] K Scott, 'From the Lakes to the Oceans: Reforming Water Resource Management Regimes in New Zealand' (2006) 17 Journal of Water Law 231, 238.

[184] Water Programme of Action: Water Allocation and Use, above n 7, 6.

[185] Resource Management Act 1991, s 123.

[186] Counsell and Evans, above n 5, 41.

[187] Burton and Cocklin, 'Water Resource Management and Environmental Policy Reform in New Zealand: Regionalism, Allocation, and Indigenous Relations: Part 1' above n 64, 104.

[188] K Ryan, 'Should the RMA include a Takings Regime?' (1998) 2 New Zealand Journal of Environmental Law 63, 72.

[189] Nolan, above n 132, 463.

[190] R Thomas, 'Compensation Issues and the Meaning of Section 85 of the RMA' (2002) 6 New Zealand Journal of Environmental Law 255, 257.

[191] [1985] 2 NZLR 94.

[192] Auckland Acclimatisation Society Inc v Sutton Holdings Ltd [1985] 2 NZLR 94, 98; Thomas, above n 190, 261.

[193] Auckland Acclimatisation Society Inc v Sutton Holdings Ltd [1985] 2 NZLR 94, 99.

[194] United States Constitution Amendment V; Ryan, above n 188, 64.

[195] [1995] 3 NZLR 622.

[196] Ibid 633.

[197] Attorney-General v Simpson [Baigent's Case] [1994] 3 NZLR 667.

[198] Falkner v Gisborne DC [1995] 3 NZLR 622, 633.

[199] Australian Constitution s 51(xxxi).

[200] See Ryan, above n 188, 77, and the cases cited therein.

[201] Counsell and Evans, above n 5 , 72.

[202] Resource Management Act 1991, s 136(5).

[203] Resource Management Act 1991, s 136(4)(b), (5)(b).

[204] Ministry for the Environment, Attitudes and Barriers to Water Transfer (December 2001) <http://www.mfe.govt.nz/publications/water/attitudes-and-barriers-to-water-transfer-dec01.pdf> , 2.

[205] Freshwater for the future: a supporting document, above n 4, 17.

[206] 'Big efforts made for and against scheme', The Press (Christchurch) 14 January 2008. See also Save the Wairau (2007) <http://www.savethewairau.co.nz/faq.html> at 29 January 2008.

[207] [1980] 1 All ER 731 (HL).

[208] Housing New Zealand Ltd v Waitakere CC [2001] NZRMA 77.

[209] Resource Management Act 1991, s 5(2)(b).

[210] Resource Management Act 1991, ss 30(1)(a), 31(1)(a).

[211] U Klein, 'Integrated Resource Management in New Zealand' (2001) 5 New Zealand Journal of Environmental Law 2, 9.

[212] Ibid 11.

[213] Resource Management Act 1991, s 30(1)(a).

[214] Resource Management Act 1991, s 30(1)(c)(ii)-(iii).

[215] Resource Management Act 1991, s 30(1)(c)(iv).

[216] Peart, above n 9, 142.

[217] Ibid 142-3, 154.

[218] Hayward, above n 5, 218.

[219] Freshwater for the future: a supporting document, above n 4, 17.

[220] Peart, above n 9, 150.

[221] S Edwards, 'Demands for Water: Issues and Tensions' (Paper presented at Fresh Water New Zealand Congress: Problems, Processes and Priorities, Auckland, November 2003).

[222] J McLean, 'New Zealand's Resource Management Act 1991: Process With Purpose?' [1992] OtaLawRw 3; (1992) 7 Otago Law Review 538, 555.

[223] Burton and Cocklin, 'Water Resource Management and Environmental Policy Reform in New Zealand: Regionalism, Allocation, and Indigenous Relations: Part 1', above n 65, 102.

[224] Harris, above n 14, 210.

[225] Ministry for the Environment, Proposed National Environmental Standardfor Water Measuring Devices: Discussion Document (November 2006) <http://www.mfe.govt.nz/publications/ water/proposed-nes-water-measuring-devices-nov06/proposed-nes-water-measuring-devices-nov06.pdf> Ministry for the Environment, Proposed National Environmental Standard for Water Measuring Devices: Report on Submissions (April 2007) <http://www.mfe.govt.nz/ publications/water/nes-water-measuring-devices-submissions-apr07/nes-water-measuring-devices-submissions-apr07.pdf> .

[226] Proposed National Environmental Standard for Water Measuring Devices: Discussion Document, above n 225, 9.

[227] J Cayford, 'New Water & Wastewater Legislation for New Zealand - The Trick is Balancing Economic Efficiency, Social Equity, and Ecological Sustainability' Water Magazine <http:// www.watermagazine.com/jc/waterjc6.rtf> at 13 April 2008.

[228] Ibid.

[229] Edwards, above n 221, 57.

[230] Snapshot of Water Allocation in New Zealand, above n 69, x.

[231] Ibid.

[232] Resource Management (Waitaki Catchment) Amendment Act 2004, s 18.

[233] Waitaki Catchment Water Allocation Regional Plan, Policy 1.

[234] Environment Canterbury, Waitaki Regional Plan: General Questions <http://www.ecan.govt. nz/Resource+Consents/WaitakiConsents/faq/General/html> at 31 January 2008.

[235] Resource Management (Waitaki Catchment) Amendment Act 2004, s 14.

[236] Doak, above n 8.

[237] Hayward, above n 5, 219.

[238] Resource Management Act 1991, ss 6(e), 7(a), 7(aa), 8.

[239] Economic Efficiency of Water Allocation, above n 111, 16.

[240] Memon, above n 27, 309.

[241] Freshwater for the future: a supporting document, above n 4, 5.

[242] C Pharino, Sustainable Water Quality Management Policy: The Role of Trading - The U.S Experience (2007) 22.

[243] Counsell and Evans, above n 5, 73.

[244] Ibid 62.

[245] Hayward, above n 5, 216

[246] Doak, above n 8.


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