New Zealand Journal of Environmental Law
Last Updated: 13 February 2023
Water Markets and Novel Pricing Regimes
This article analyses the regulation of freshwater use in New Zealand and presents future alternative regimes. The current availability and use of fresh water is discussed, as are the shortfalls of the current allocation system. Primary consideration is given to water management under the Resource Management Act and the implementation of the RMA by the Auckland Regional Council. The Quota Management System for fisheries, implemented in the Fisheries Act 1986, is analysed for its potential to provide an alternative means to regulate the use of freshwater resources. Water rights trading and water pricing are also discussed as possible alternatives to the first-come first-served system now established under the RMA. The article concludes that volumetric pricing of water, in combination with water-market regimes, provides a sound alternative to the current freshwater management regime.
The next great resource wars may be fought over water rather than oil.1 Water shortages are occurring across the world, fed by the increasing needs of industry, agriculture, and the growing human population. Experts fear that in the coming quartercentury the needs of the projected eight billion human inhabitants of the Earth for fresh water will exceed the capacity of the Earth to provide for those
*BSc Biology (Hons), Emory University (USA). The paper was written for the LLM course in Mining, Energy and Natural Resources Law at the Law School of the University of Auckland, June 2006.
1 See, for example, Adel Darwish, “Analysis: Middle East Water Wars”, BBC News, Friday 30 May 2003 at: http://news.bbc.co.uk/1/hi/world/middle_east/2949768.stm and Patrick McLoughlin, “Scientists Say Risk of Water Wars Rising”, Planet Ark, 23 August 2004 at: http://www.planetark.com/dailynewsstory.cfm/newsid/26728/story.htm (all websites last accessed 31 May 2006).
needs.2 Many of the world’s great rivers are now almost completely controlled by human engineering. Hydroelectric power and human abstraction deplete these rivers to a trickle by the time they reach the sea. Increasing pressures on freshwater use not only stress the humans downstream but also the fish stocks and biological diversity that these rivers once supported.3
Water has historically been perceived as a limitless resource, but this attitude is beginning to change. In 1968 the European Water Charter stated that water was not infinite, but rather an exhaustible and indispensable resource. International cooperation in resource management has bloomed as the need to protect shared waterways becomes increasingly clear.4 Users are beginning to recognise that water is unique from other resources. Not only is water a resource for its own sake, but it also underlies the production of other natural resources, supports other natural systems, and is shared by multiple users.
In New Zealand water is legally regarded as a Crown resource and a public good. It is available for the use of everyone, but owned by no one unless otherwise permitted. It provides sustenance for New Zealand’s crops and livestock while also providing the energy for 70 per cent of the country’s elec tricity. Agriculture, the dominant user of allocated water, uses upwards of 75 per cent of all water allocated by regional councils.5
Compared to many regions of the world, New Zealand’s water resources are only mildly stressed. However, demands in some regions for farming, hydro electricity, industry and recreation are increasingly leading to localised use beyond sustainable capacity. “New Zealand’s freshwater resources are under pressure. We no longer have sufficient water to meet all needs, in all places, at all times.”6 Despite growing demands on the water sources of the nation, the predominant policy remains to “let it be”. The majority of water allocation is done by regional councils on an ad hoc, firstcome firstserved basis.
The Resource Management Act 1991 provides the framework for freshwater allocation in New Zealand. The spirit of the Act is carried out in a decentra lised manner through the country’s twelve regional councils and four unitary authorities. These authorities provide individuals with resource consent to undertake any activity that may have adverse environmental effects, including the taking, diversion, or damming of fresh water. The Resource Management
2 Alexandre Kiss and Dinah Shelton, International Environmental Law, 2nd ed (Transnational Publishers Inc, USA, 2000), 395.
3 Ibid, 396.
4 Ibid, 403.
Act allows for localised resource management, but local authorities are finding it increasingly difficult to uphold the purpose and principles of the Act when dealing with water allocation in increasingly stressed catchments.
New Zealand’s fisheries may provide guidance for a more efficient water allocation regime. The Fisheries Acts 1983 and 1996 overhauled the country’s fisheries to provide for sustainable use of the overstressed fisheries within the exclusive economic zone. It allows for muchneeded resource conservation, and could be readily adapted to freshwater allocation. The fisheries regime, however, does not provide a complete solution, and applying the regime to fisheries has been inadequately explored. Among other options available for freshwater management, the trading of water rights and the setting of charges for water itself require further investigation.
The intent of this paper is to address the future of freshwater allocation in New Zealand. Part 2 will elaborate on the current status and stresses on the water supply of the country. Part 3 will analyse water allocation under the Resource Management Act 1991. In Part 4, the policies of the Auckland Regional Council will be examined in detail. The ARC faces particularly high demand for municipal water use, housing approximately one third of the population of New Zealand. In Part 5, the Fisheries Management Regime and its bearing on water management law is discussed. Part 6 will examine the future of water rights trading regimes, and Part 7 will provide a proposal for the valuation of water itself. Finally, Part 8 states a conclusion.
2. FRESHWATER ISSUES IN NEW ZEALAND
New Zealand’s prevailing westerly winds carry water from the Tasman Sea across both the North and South islands. Most of the country receives regular precipitation, and is not short of water. This holds particularly true on the west coasts. As the clouds move east, however, the rain decreases. The demand for fresh water in some regions for use in agriculture, hydroelectricity generation, industry, and recreation increasingly leads to the use of water in excess of the region’s capacity. Eastern areas of the country experience dry summers and often suffer seasonal moisture deficits.7 Among these areas are the Canterbury Plains, which produce a large portion of the agricultural output of New Zealand. The demand for farmscale irrigation in Canterbury has the potential to exceed capacity beyond sustainable levels.8
The everincreasing allocation of water for outofstream uses has obvious implications for the viability of instream processes. However, alleviating the burden of water allocation is not just about preventing the loss of biological resources like fish species. For example, 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 of land that are potentially irrigable in the near future.9 “To provide this much irrigation water will require both more efficient use of the existing water resource and the harnessing of other available water resources.”10 Agriculture is the dominant abstractive user of allocated water, using 77 per cent of the water allocated by regional councils. The vast majority of this water, in turn, is used for irrigation.11 Of the remaining allocations, industry uses 7 per cent, while 16 per cent is allocated for community, municipal, and domestic use. Irrigated land in New Zealand has doubled since 1985.12
The two main issues surrounding fresh water in New Zealand are the reduction or alteration of water flows to the sacrifice of conservation and recreational values and the pollution of water through direct and diffuse discharges. Although this paper will focus on the first of these issues, it is important to note that water volume and water quality are interconnected. Decreasing water flow through abstractive use in turn decreases capacity of the water body to absorb discharges without permanent damage. Therefore, poor management of the passage of effluent from animals, fertiliser, or sediment into waters simply worsens the problems of water allocation. “High numbers of cattle and sheep are a significant environmental problem in enclosed lake catchments and some rivers. Failure to control contamination in these ‘sensitive’ areas typically leads to eutrophication and biological collapse/loss of habitat value.”13 Protecting riparian margins is an important means to buffer such effects, but riparian protection is only well promoted in the occasional region.14
New Zealand has begun to realise that its water resources are not infinite. In the MAF publication “Freshwater for a Sustainable Future: Issues and Options”
(2004), the Ministry states that: “New Zealand’s freshwater resources are under pressure. We no longer have sufficient water to meet all needs, in all places, at all times.”15 In an attempt to identify the current stresses on fresh water, the Ministry of Agriculture and Forestry (“MAF”) held a freshwater allocation conference in 2002. The conference found that New Zealanders value water for a wide array of reasons, which can be broadly characterised as:16
economic — for irrigation and industry environmental — maintaining life in streams health — for water supply and safe swimming cultural — mahinga kai and mauri
recreation — for fishing, boating and canoeing
In a separate study, New Zealanders characterised the state of rivers, lakes, and beaches as the primary of all their environmental concerns.17
In the midst of this concern, Jim Sutton, former Minister of Agriculture, asked, “What about our strategic overview — or lack of it — for water in New Zealand, and the risks of foreclosing future options through ‘first in time, first in right’ water consent process?”18 He further stated that the majority of abstracted water is used in rural communities that have only limited understanding of the property rights and responsibilities that are associated with water.19
Aggravating factors continue to suggest the need for a more efficient water management system in New Zealand. This holds particularly true as the resource becomes increasingly scarce. Among these aggravating factors are projected changes in land use with increasing demand for irrigation, the likelihood of a more variable climate, and requirements for environmentally sustainable development and a more diversified economic base in rural New Zealand.20 In the face of these concerns, there is simply not enough water flow to sustain in stream values and meet longterm water demands from all sectors.21
One of the most troublesome aspects of water management is the necessity of incorporating intangible values into assessment. These intangibles include, for instance, the effects of use on aesthetic, recreational, wildlife and other non market values. “Many people value naturalness and are disturbed when natural
environments are changed, either because they provide important ecosystem services, or simply because the environment is perceived to be better in a more natural state.”22 Perhaps exemplifying the economic weight such values might have, a study of Christchurch households showed that residents were willing to pay about $400 a year to preserve minimum flows and avoid use restrictions. This equated to an annual benefit of more than $48 million.23 A similar study showed that Waimea Plains residents were willing to pay about $400 a year to reduce pumping from aquifers by 20 per cent to preserve streams’ flows.24
Here emerge the conflicts of interest that surround any discussion of resource allocation. While many nonusers want to preserve instream values, the wellbeing of outofstream users like farmers is heavily reliant upon extracting water for irrigation. Irrigation allows farmers to receive highervalue contracts and to diversify their crops. As one farmer aptly sums it, “None of these opportunities were available without irrigation — the seed companies didn’t want to know us then.”25
The Ministry of Agriculture and Forestry acknowledges that New Zealand is in need of a more sophisticated framework for water management than the established “firstcome firstserved”.26 Among the current system failings is the difficulty that regional authorities have in prioritising demands. To address the issue, the Sustainable Water Programme of Action was established in 2003 to identify strategies to tackle the problem.27 Among these are included clearer direction from the central government, greater consistency of management across the country, and a better framework for deciding between conflicting demands.28 Unfortunately, these policy suggestions do not immediately mesh with the handsoff, delegative, and effectsbased approach of the Resource Management Act.
The proposals resulting from the Programme of Action are vague. These include the improvement of use by building partnerships among various institutions, increasing national direction, and encouraging better practice. The Programme also asserted that national policy statements and environmental standards are a necessity. Among the Principles adopted are the following:29
The difficulty remains: when working on a firstcome firstserved basis, how are councils going to promote efficiency of water use? What motivation exists on the part of rights holders to achieve this efficiency?
Among the actions suggested to manage increasing demands for water and to encourage efficient water management is the creation of a national policy statement on managing such demands.30 Most commentators addressing the issue of water allocation have made the same statement — councils need a national policy statement. Without this statement, the primary methodology available for councils to regulate use is the setting of a minimum flow regime. These regimes, however, are contentious and are often challenged in the Environment Court. A national standard for defining minimum flows would be possible through a national policy statement or national environmental standards. Furthermore, through a national policy statement it is hoped that councils will be able to address community preferences before rather than after major increases in demand. An example of such successful management cited in the Action Plan is the Waitaki Catchment Water Allocation Regional Plan. This plan, discussed further in Part 6, directs water allocation towards public water supply, agricultural and horticultural activities, and to hydroelectricity generation.
Regional councils are also pinning their hopes on rights trading regimes for the transfer of consents between users. The RMA has always allowed transfer of consent to take water (water permits) from one user to another within a catchment. Some councils have embraced this transfer by promoting such
regimes in their regional water plans. The transferability of water allocation rights is intended to encourage efficient use, allowing water to be shifted to where demand for it is greatest. Transfers can also reduce tensions between councils and water users over resource availability.31
Councils consistently stumble on the problem of resource overallocation. “Overallocation occurs if there is insufficient protection for the environmental values of water bodies, and too much water is allocated to existing resource consent holders. This, in turn, creates the need to allocate water back to the environment.”32 The inability of water bodies to meet their required water quality can also be described as overallocation because the input into these bodies is exceeding their pollutantcarrying capacity. Again the cause of the problem is the fallback to the firstcome firstserved regime. There is no way to prevent inefficient resource use once a resource consent is granted. This inefficiency causes more water being drawn than is necessary, which in turn negatively impacts the other values and characteristics of the water.33
3. WATER MANAGEMENT UNDER THE RMA
3.1 General Provisions
The Resource Management Act 199134 is the primary legislative tool for water resource management in New Zealand. It replaced the Water and Soil Conservation Act 1967,35 which was the first New Zealand legislation to introduce water quality as a consideration in planning. The Water and Soil Conservation Act was not an effectsbased legislation. The Resource Manage ment Act (“RMA”), on the other hand, is intended to be purely effectsbased. This means that the effects that activities have on the environment are to be managed, rather than the activities themselves. The purpose of the RMA is the promotion of the sustainable management of natural and physical resources.
The RMA creates a localised authority system in which regional councils execute the majority of its functions. National authority guides these regional councils through broad legislative policy statements where it is deemed necessary, and all regional authorities are required to adhere to these national regimes. Primary authority is legislated through national policy statements (s 24), national environmental standards (ss 43–44), and water conservation orders (ss 199–217). Regional policy statements and regional plans contain
more specific obligations but cannot be in conflict with the national regimes, and district plans in turn cannot be in conflict with regional policies and plans. Only regional policy statements and district plans are mandatory.
The purpose of the RMA is outlined in s 5 (Purpose):
(a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future gener ations; and
(b) Safeguarding the lifesupporting capacity of air, water, soil, and eco systems; and
(c) Avoiding, remedying or mitigating any adverse effects of activities on the environment.
Fresh water is one of the primary natural resources to be managed under s 5(1), and so its sustainable use presumably underlies all aspects of the Act. Authors often refer to the dual nature of s 5(2), which contains both a “management function” and a corresponding “ecological function” detailed in 5(2)(a–c). Separating these functions is a dubious “while” that either subordinates or prioritises the ecological function, depending on the inclination of the reader. Water management is a critical aspect of both of these functions. It is stated explicitly in s 5(2)(b), but is also requisite for people and communities to provide for their social, economic, and cultural wellbeing as well as for their health and safety. Councils have tended to take a “balancing” approach towards these dual functions rather than interpreting 5(2)(a–c) as a more “ecocentric” environmental bottom line.36
Sections 6 and 7 of the RMA are also integral to carrying out its purpose. Section 6 makes recognition of “Matters of national importance”. States shall “recognise and provide for”, among other things, the preservation of the natural character of wetlands, lakes, and rivers and their margins, the protection of significant indigenous species and their habitats, and Maori concerns.37 The “natural character” provided for in s 6(a) can include visual aspects, water quality and clarity, natural biotic makeup, and water level.
Section 7, Other Matters, states that decisionmakers shall “have particular
regard to” Kaitiakitanga or the ethic of stewardship,38 efficient use and develop ment of resources,39 the maintenance and enhancement of amenity values,40 the intrinsic value of ecosystems,41 the maintenance and enhancement of the quality of the environment,42 any finite characteristics of natural and physical resources,43 and the protection of the habitat of trout and salmon.44 All of these matters relate either directly or indirectly to fresh water. Efficient use will be a key point of concern in this paper, particularly in relation to the firstcome firstserved principle. Sections 7(c) and 7(h) regarding amenity values and the habitat of trout and salmon are often cited for their connections to tourism and visual amenity protection. The intrinsic value recognised in s 7(c) is considered particularly important to New Zealand communities, where a body of water is often a significant local feature.45 Section 7(g) recognises the finite qualities of water bodies that are often lost as a result of poor allocation and planning.46
National policy statements, discussed above, are prepared by the Minister for the Environment (“MfE”) under ss 24(a) and 45–52, but as of yet do not exist. The Ministry for the Environment is relatively small, and functions mainly as an advisory body to the Cabinet on environmental matters.47 National environmental standards, including standards for water quality, level, or flow, are provided for in ss 43–44, but to date only standards for air quality and contaminants have been issued. The MfE has produced water quality guidelines regarding water clarity, undesirable organisms, and instream values, but these guidelines have no statutory authority.48 Formal standards may be issued in 2007.
Another department that plays a role in water management is the Department of Conservation (“DoC”). DoC has more active involvement in water resource management than the MfE, but is impeded by a lack of resources. It manages 30 per cent of land in New Zealand, predominantly comprised of national parks, reserves, and conservation areas. The role of DoC, as described in the Conservation Act 1987,49 is to “preserve, as far as practical, all indigenous
freshwater fisheries, and protect recreational freshwater fisheries and freshwater fish habitats”.50 DoC is a primary advocate of riparian management and minimum flows rather than a direct manager of resources.
The most important players in freshwater management are regional councils. The RMA itself makes no specific reference to water allocation. It is up to regional councils to address the issue through plans that meet the principles set out in the Act. Environmental decisions have been substantially decentralised away from the central government.51 The authority of regional councils is en trenched in s 14, which makes almost all water abstraction a prohibited activity, unless otherwise provided for through a regional plan or through a resource consent. This is a notable contrast to land management, where most activities are permitted unless otherwise stated in a district or regional plan.
3.2 Regional Councils
Regional councils were always intended to be the primary decisionmakers under the RMA. In deference to the importance of water within the effects based regime, the boundaries of the 12 regional councils and 4 unitary councils are defined on the basis of major water catchments. Section 14(1) of the RMA states:
(a) Water (other than open coastal water); or
(b) Heat or energy from water (other than open coastal water); or
(c) Heat or energy from the material surrounding any geothermal water — unless the taking, use, damming, or diversion is allowed by subsection (3).
Section 14(3), in turn, states:
(a) The taking, use, damming, or diversion is expressly allowed by a rule in a regional plan [and in any relevant proposed regional plan] or a resource consent ...
Thus, the taking, use, damming, or diversion of water is classified as a prohibited activity unless otherwise provided for by a regional plan, or by consent granted
through a regional authority. The only exceptions relating to fresh water are for reasonable domestic needs and the needs of domestic animals when these are not likely to have adverse effects on the environment, and also for the purpose of firefighting.52
Any activity involving taking, use, damming, or diversion of water is clas sified as permitted, controlled, discretionary, noncomplying or prohibited. While, for land use, consents activities are generally considered permitted unless stated otherwise in a plan, the opposite approach is taken with water. All water activities are discretionary under s 77C of the Act unless otherwise provided for in a plan or a proposed plan. An example of the implementation of regional plans to mould the water use regime can be found in the Wellington Regional Council Regional Freshwater Plan. Rule 7 of the plan allows the taking of 20,000 litres of water per day from any water source other than Lower Hutt groundwater as a permitted activity.53
Other sections relevant to water allocation in the RMA include s 15 and s 17. Section 15 pertains to water quality, controlling discharges to water and discharges that will eventually reach water. Section 17 establishes a general duty on the part of all authorities to avoid, mitigate, or remedy adverse effects.
Section 30 of the RMA lists the functions and duties of regional authorities under the Act. Section 30(1)(e) lists among these duties:
(e) The control of the taking, use, damming, and diversion of water, and the control of the quantity, level, and flow of water in any water body, including
(i) The setting of any maximum or minimum levels or flows of water;
(ii) The control of the range, or rate of change, of levels or flows of water;
(iii) The control of the taking or use of geothermal energy;
Section 30(1)(fa), inserted in the Resource Management Amendment Act 2005, further clarifies these powers to include:
(fa) If appropriate, the establishment of rules in a regional plan to allocate any of the following:
(i) The taking or use of water (other than open coastal water);
(ii) The taking or use of heat or energy from water (other than open coastal water);
(iii) The taking or use of heat or energy from the material surrounding geo thermal water;
(iv) The capacity of air or water to assimilate a discharge of a contaminant;
52 RMA, supra note 34, ss 14(3)(b) & 14(3)(e).
53 MAF, Economic Efficiency of Water Allocation (MAF Technical paper No 2001/7, MAF, November 2001) 17.
Other duties include the control of discharges into water and the protection of any biological diversity that is dependent on the freshwater environment.
Water use can be limited by regional authorities for the purpose of avoiding, remedying, or mitigating harm. Councils apply these limits through permitted activity standards set out in plans, through conditions placed on permits, and through the setting of minimum flow regimes.
The protection of public interest values also falls on the shoulders of regional councils. For example, parties cannot seek consent to maintain a cer tain flow of water for kayaking or for fishing. Councils instead protect these interests by limiting water allocation and use. Unfortunately, lack of knowledge regarding the history and characteristics of a water source often means that water is allocated in ignorance of potential adverse effects. Finite terms placed on water consents are an inherently precautionary measure in this regard.54
The content of regional plans is discussed in ss 63–70, and includes rules for maintaining minimum flows and classification of activities. Among the criteria for creating a plan are: any significant resource conflict; any foreseeable demand for natural and physical resources; the restoration of resources in a deteriorated state or the avoidance or mitigation of such a state; implementation of a national policy statement; and use of a resource in such a way that has actual or potential adverse effects on soils, air, or water.55
Plans are particularly useful to councils because ad hoc allocation does not allow for the consideration of cumulative or longterm effects and lacks efficiency. Preparation of a regional plan is the only way to set sustainable minimum flow regimes. A plan can also help to avoid or mitigate adverse effects. For example, a plan can limit the term of resource consents when there is insufficient information available to determine what the adverse effects of the consent will be.56 Plans do have their disadvantages — they are inflexible and the process of modifying an existing plan is tedious and expensive. In situations of extreme water shortage, councils also have the power to issue water shortage directions under s 329, which enables the limiting of takes on a temporary basis. These directions last only 14 days, though they can be renewed, and they are rarely used.
The authority of regional councils to allocate water can be restricted by the issuance of water conservation orders, described in ss 199–217. Water conservation orders are applied for through the Minister for the Environment in order to protect outstanding water bodies. Values considered by the Minister include wild, scenic, or natural characteristics, wildlife/fisheries value, and amenity, landscape, scientific, or cultural value.57 In Ashburton Acclimatisation
54 Deans, supra note 13, at 210. 55 Ibid, 228.
56 Ibid, 229.
57 RMA, supra note 34, s 199.
Society v Federated Farmers of New Zealand Inc58 it was established by the Court of Appeal that these outstanding values must be outstanding on a “national basis”.59 Water conservation orders provide strong protection, and some industries have proposed diluting them to allow greater use of such bodies.60 There are currently 14 water conservation orders in effect, two for lakes (Wairarapa and Ellesmere), and the rest for rivers.61
The resource consent process allows councils and authorities to impose conditions on the use of natural resources. They are also intended to allow the participation of affected parties. With respect to water allocation and use, permitted activities defined in a plan do not require any oversight. In the case of controlled activities, authorities must grant consent but are able to impose conditions on that consent. Discretionary activities (any water use not specifically permitted in the Act or in a plan) must be processed by authorities and consent can be denied or allowed with conditions. Resource consents do not have to be notified, however, if the potential effects are considered minor and meet the test for nonnotification in s 93. In this situation, parties considered unaffected by the council do not have the opportunity to object, and may not even be aware of the application.
The prescription of most freshwaterrelated activities as discretionary allows for stronger assessment of effects to take place, as well as for conditions to be applied based on these assessments. Regional plans also allow authorities to list aspects of consents over which they maintain discretion regardless of the conditions of the consent. These conditions can include, for instance, the maintenance of a minimum flow regime or water level enhancement for declining wetlands.62
Minimum water flows are set both in plans and in consents. Minimum flows are intended to provide a baseline flow that protects biological processes occurring within streams. These flows are particularly important during dry spells when they are necessary to allow for fish movement and breeding. Minimum flows “are not a universal panacea, as it is sometimes important to ensure that the flow rates are varied so that high flows which would otherwise remove obstacles, gravel buildup and weeds in riverbeds are not totally diverted
58  NZCA 214;  1 NZLR 78; 12 NZTPA 289 CA.
into water schemes”.63 It is also important to buffer minimum flows so that the availability of freshwater to consent holders does not drop to zero overnight.
“The RMA has brought about significant procedural improvements in water resource planning by means of a cooperative, consultative approach. However, limited attention has been given to issues of water allocation to promote the sustainable use of increasingly scarce resources.”64 With the exception of a few specific catchments where serious conflicts over water allocation exist, the prioritisation of water allocation to satisfy competing needs has received little consideration from regional councils.65
One of the most significant problems with the RMA regime is that it is very difficult to control allocation in a way that protects against cumulative adverse effects. “The bare provisions of the RMA, without a regional plan and without the national policy statements and national environmental standards ... are of little help in making the hard choices about the allocation of water.”66 A national policy statement on fresh water still does not exist, and regional councils cannot achieve sustainable management on their own.
The current regime also provides very few options for those trying to advocate for instream values. It is generally ineffective to challenge individ ual consent applications because most consents do not take enough water to create detrimental effects in and of themselves. The main avenue available to protect instream values against cumulative effects is through regional plans that set minimum flow regimes. Unfortunately, once these plans are in place they are difficult to amend. Water conservation orders (“WCOs”) provide another potential protective regime, but these WCOs require a water body of outstanding national importance and are more useful in a park or reserve setting than for general allocation matters.
As discussed, minimum flow regimes are the most important protection avail able for freshwater ecosystems. Unfortunately, these regimes provide minimal protection and are arguably oversimplified. As Harris states, “The perception that there is an environmental bottom line (river flow or aquifer level/pressure) below which the instream values will be protected is a simplistic representation of reality”. He further states that as water abstraction increases, risks to in stream values increase, regardless of the minimum flow necessary to sustain a water body’s capacity to support life. Appropriate minimum flows are also
63 Ibid, 223.
difficult to accurately determine, as some streams can have detrimental low years even without human abstraction, while others can survive drying out every few years.67
As water allocation increases from any given water body, so too increases the frequency at which minimum flows will be reached and the duration of time these flows will last. This in turn increases the likelihood of damage to freshwaterdependent ecosystems in and around water bodies. Freshwater users have no incentive to conserve water or to use less than their allocation. Most users are allocated far more fresh water than they actually use, and efficient use is not even a consideration. In those cases where consent holders draw more than their consent allows, there are usually no ramifications. Monitoring in 2001 indicated that 12 per cent of consent holders in the Auckland Region were exceeding their daily or annual allocations.68 “Even when enforcement action is taken, small fines have in the past sent a message that the offences are trivial and the benefits of breaching them outweigh the penalties.”69 Deans also further notes that the remedying of damage caused by low flows is rarely undertaken.70 Therefore, damage that might otherwise be considered shortterm, is effectually permanent and irreversible.
The most glaring problem with the water allocation regime is the processing of consent applications on a firstcome firstserved basis. The firstcome first served regime is in place so that councils do not have to choose between conflicting uses, allowing allocation to proceed in what is considered an equi table manner. Councils, in effect, avoid having to pick the “winners” and “losers” of the consent process. Unfortunately, firstcome firstserved allocation strongly inhibits the ability of regional authorities to undertake their obligations under ss 5–7 of the RMA. It is difficult to conceive how, on a firstcome first served basis, councils can avoid, remedy, or mitigate adverse effects, or, for instance, promote the efficient use and development of the water resource (s 7(b)). As Peart remarks, regarding the Parliamentary Commissioner for the Environment’s guiding document Towards Sustainable Development, The Role of the Resource Management Act 1991 (1998), “efficiency of resource use is barely on the agenda”.71
4. AUCKLAND REGIONAL COUNCIL FRESHWATER MANAGEMENT
The Auckland Regional Council (“ARC”) Annual Plan 2005/2006 describes the state of regional fresh water as follows:72
Water is a finite resource. In the Auckland region, demand for fresh water, driven by population growth, continues to increase. The region’s water resource needs to be allocated fairly, and used efficiently so that it is maintained into the future ... Both surface and underground water resources are monitored and water is allocated according to demand and availability.
The plan further indicates that the current regime performance is good, as total abstractions are not exceeding the volume allocated for use.
Before the RMA, the requirements of the Water and Soil Conservation Act 1967 were applied by regional water boards. The requirements of the Auck land Regional Water Board included the processing of applications for water abstraction, which in turn were controlled by conditions setting the rate or volume of abstraction. These duties are now handled by the ARC, which is guided by the objectives and policies described in the Auckland Regional Policy Statement.
The region lacks a wellintegrated water management system. For instance, the current regime is ignorant of the fact that with increasing wateruse allocation comes increasing wastewater. This wastewater could be treated as a resource rather than a waste product, decreasing the pressures on natural systems. For example, greywater from showers and washing machines can be reused for irrigation.73 Instead, there is no water reuse, and while wastewater management plans exist there are no freshwater management plans. The ARC uses supply management rather than demand management for water allocation. This means that there exists no pressure to maximise use of existing infrastructure. The costs of waste management are not factored in to initial consent pricing, causing water to appear cheaper than it is.74
4.2 ARC Policy Statements and Plans
Section 60 of the RMA requires that regional councils prepare regional policy statements. The purpose of these statements is to provide “an overview of the resource management issues of the region and policies and methods to achieve integrated management of the natural and physical resources of the whole region”.75 Chapter 9 of the Auckland Regional Policy Statement (“Water Conservation and Allocation”; “ARPS”) is dedicated to providing this overview for the region’s fresh water.76 The ARPS identifies water allocation issues and sets out objectives, policies, and methods to address these issues. It also discusses indicators to be used to monitor the effectiveness of the council’s policies and methods.77
One of the primary water management methods is the use of Water Resource Allocation Reports (“WRARs”, formerly known as management plans).
WRARs do the following:78
(i) describe the area and water resource to which the assessment report applies;
(ii) identify issues that affect the use, development or protection of the natural and physical resources;
(iii) provide information on water availability including minimum water levels or flow regimes;(iv) evaluate strategies for allocation priorities, economic instruments, and assessment of efficient use;(v) propose ongoing monitoring or investigation of the resource;
(vi) specify a review or expiry date of the report.
WRARs, however, are nonstatutory and so do not actually regulate water management (which is done through regional plans and consents).79 WRARs are developed for areas where there is high water demand, and they tend to be catchment or aquifer specific. The Auckland Region is divided into 31 ground water management areas and 24 surface water management areas.80
The ARC water management regime is based upon allocating a total quantity of water from a river that is equivalent to some portion of the fiveyear low flow. Typically, the region’s WRARs suggest retention of 30 per cent of the fiveyear
low flow for a given stream. Unfortunately, water abstraction at these low flows may cause adverse environmental effects. “It is likely that taking any water from Auckland streams has the potential for adverse effects in midsummer.”81 Reduction of low flow levels and increased duration of low flows increases the likelihood of reduced oxygen levels, elevated water temperatures, and reduced habitat. Abstraction tends to prolong the period during which streams would normally be subject to their low flows.82 Groundwater is managed by a regime similar to the surface water regime, where abstraction is set at a level that prevents depletion or saltwater intrusion, and adverse effects on springs and wetlands.83
The ARC has also completed a Proposed Auckland Regional Plan for Air, Land, and Water (“ALW”).84 This plan contains rules that determine whether an intended water use is permitted, controlled, discretionary, or prohibited. The plan helps to streamline the resource consent process, particularly by decreasing the number of applications that are discretionary (these include almost all water related activities in the absence of a plan). The plan also further quantifies those activities that are permitted under s 14 such as use for “reasonable domestic needs” that otherwise may have afforded users a loophole in regulation.
The ALW states: “Water is essential to the social, economic and cultural wellbeing of the Auckland region and is highly valued for both its ‘instream qualities’, and its ‘outofstream’ benefits for consumptive uses.”85 The largest “outofstream” water use in the Auckland Region is for municipal supply. This accounts for 75 per cent of surface water and 30 per cent of groundwater abstractions. The horticulture sector is the second largest user.86 The plan also addresses the fact that instream values, such as kayaking, are in greatest demand during the summer — which is also the season of highest abstractive demand.87
The ARC Draft LongTerm Council Community Plan 2006–2016 (“LTCCP”) also has some bearing on water allocation.88 The plan lists among aims to be achieved for the region:89
85 Ibid, 62.
Among other promised objectives in the LTCCP is the development of policies for the management of water resources in the northeastern coastal part of the region, to be followed with plans for the northwest and South Auckland areas. The longterm plan also promises the development between 2006 and 2008 of “a sound and effective method for valuing the loss of natural environments and habitats”.90 The achievement of this goal would be a remarkable feat, and such valuing will be further discussed in Parts 6 and 7 below.
4.3 ARC Consent Monitoring
The ARC has the duty under s 35(2) to monitor the “state of the whole or any part of the environment of its region or district to the extent that is appropriate to enable the local authority to effectively carry out its functions under this Act” as well as the efficiency and effectiveness of its policies. To carry out this duty the ARC employs a water resource monitoring programme and resource consent compliance monitoring strategy.91
Most resource consents issues by the ARC since 1994 have a condition requiring a water meter to be fitted and read at regular intervals. Consent holders are required to report water readings back to the ARC. The purpose of this monitoring is to ensure compliance with consent conditions as well as for consent reviews and renewals, input into WRAR preparation and review, water resource projects, and determining the areas of increasing water demand.92 These meters are not, however, used for pricing or charging for water based upon its use. Monitoring in 2001 indicated that 12 per cent of consent holders were exceeding their daily or annual allocations.93 The ARC focuses consent compliance monitoring on 20 per cent of the total permits, including those that are for large abstractions or in sensitive resource areas.94
4.4 ARC Pricing Regime
The highest abstractive use of water in Auckland is to supply municipal water. Municipal water in Auckland functions on a wholesaler/retailer split. Water care Services Ltd takes water through the resource consent process, which is then sold to retailers like Metrowater. The water retailers charge users a volumetric price for their water use, but because Watercare Services does not pay volumetrically for the water it takes, the true cost of water is not passed on to customers. Despite widespread discontent with retailers like Metrowater profiting by reselling a public resource, the retailer regime does illustrate the possibility of successfully integrating volumetric pricing.95
Although volumetric pricing is not used for abstractive consent holders (like Watercare Services), these users do pay the ARC to obtain their consents. “Resource consent applicants are exacerbators, in that they directly cause the Council to incur the costs of processing a resource consent application. In accordance with the exacerbatorpays principle, all resource consent costs are borne by consent applicants.”96
The ability of the ARC to charge for the consent process is established in s 36(1) of the RMA. This section allows councils to fix:97
(a) Charges payable by applicants for the preparation or change of a policy statement or plan, for the carrying out by the local authority of its functions in relation to such applications.
(b) Charges payable by applicants for resource consents, for the carrying out by the local authority of its functions in relation to the receiving, processing, and granting of resource consents (including certificates of compliance).
(c) Charges payable by holders of resource consents, for the carrying out by the local authority of its functions in relation to the administration, monitoring, and supervision of resource consents (including certificates of compliance), and for the carrying out of its resource management functions under section 35.
Rates charged by the ARC to take water are equal to the sum of the Consent Application Charge, the Administration, Monitoring and Supervision Charge (“AMS Charge”) and the Functions, Powers and Duties Charge (“FPD Charge”). I will further discuss these charges (as of 2006) below, as they are important to evaluating the functionality of the current water allocation regime.
The Consent Application Charge represents a flat fee that is dependent upon the classification of the consent activity. For instance, to take water as a controlled activity the consent charge is $1,000, while for discretionary non complying nonnotified abstraction it is $1,500, and for discretionary non complying notified abstraction it is $5,000.98
The AMS Charge can be broken down into two separate fees. The Administration charge is a flat rate of $100 per consent. The Monitoring and Supervision charge “covers the cost of undertaking compliance monitoring inspections, reporting and administration associated with ensuring activities are carried out in accordance with consent conditions”.99 The Charge varies between consents based upon:100
The Functions, Powers and Duties Charge is assessed to cover the council’s State of the Environment monitoring programmes, environmental research, and education programmes. The FPD Charge again varies by consent. The charge is intended to cover those duties assigned to councils in s 35, which states that every authority shall monitor:
(a) the state of the whole or any part of the environment of its region or district to the extent that is appropriate to enable the local authority to effectively carry out its functions under this Act; and
(b) the efficiency and effectiveness of policies, rules, or other methods in its policy statement or its plan; and
(c) the exercise of any functions, powers, or duties delegated or transferred by it; and
(d) the exercise of the resource consents that have effect in its region or district, as the case may be
Thus the annual fee paid is not truly volumetric. Instead there is a formula applied by the council that takes into account maximum daily volume drawn, location of the water source, and season of use. It can generally be said that an increase in the volume of water applied for in a consent corresponds to an increase in both the AMS and the FPD charges. These charges also tend to increase when the water source that the consent applicant intends to use is stressed and near maximum allocation. The annual fee charged to take water applies whether the water is used or not — called an “all or nothing” approach.
The charges of some indicative consent holders in the Auckland Region are supplied in Table 1 below. Watercare Services Ltd is the largest abstractive user in the Auckland Region, providing most of the region’s municipal water supply.101
Table 1. Indicative Auckland Region charges for consent to take water
Typical Large Orchard
taking water from
aquifer for irrigation
NZ Steel Limited
$100 + AR (Compliance
Monitoring cost, decided
$5,532 + AR
at year end)
Watercare Services Ltd
On its surface, the data in this chart appear to demonstrate an application of the userpays principle. As users take more water, AMS and FPD charges both increase. Thus big users like NZ Steel Limited pay substantially more to take water than smaller users. Watercare Services Ltd, the largest abstractive user in the Auckland region, also pays the highest total fees to the ARC of all users.
However, it is important to bear in mind what these charges actually pay for. The AMS Charge simply covers the costs to the ARC for monitoring consent compliance. The FPD Charge covers monitoring of the environmental effects of freshwater activities, but does not in any respect pay for the avoidance, remedying, or mitigation of these effects. Finally, no part of the fee intends to reflect the value of water itself, which again is considered a free resource.
Further consideration of the fees paid by Watercare Services is particularly valuable. Watercare provides municipal water for about 1.2 million people, including almost the entire population of the Auckland Region.102 The price that Watercare pays for the actual taking of this water is about $355,000. This places the value of an entire year’s supply of water for an individual in the Auckland Region at about $0.30 under the current consent regime.
This value of water can be considered in relation to the Christchurch study cited in Part 2, above. Christchurch residents were willing to pay about $400 a year per household to preserve minimum flows and avoid use restrictions. This equated to an annual benefit of preserving flows of more than $48 million — for a population far smaller than that of the Auckland Region.103 It is also important to keep in mind that although these users were willing to pay $48 million to preserve flows, they do not actually have a means to do so under the current allocation system.
The valuation of fresh water in Christchurch may not be directly comparable to what Aucklanders are willing to pay because Auckland’s water resources are less stressed than those of Christchurch. Part of the value of preserving minimum flows in Christchurch undoubtedly relates to protecting agriculture rather than protecting instream values. However, it illustrates both that water has a value that is not taken into account under the current allocation system, as well as the difficulties of advocating and protecting instream values.
4.5 Lessons Drawn from the ARC Regime
The problems with water allocation seem to stem from the fact that the resource is communally owned. As a free resource, there is little reason for any user to be conservative in his water use. Advocating for instream values is also made very difficult by the nature of cumulative effects on these values. It is very difficult to argue that any one consent application seeking to take a reasonable amount of water will have a negative effect on instream values. Un fortunately, the consent process is the primary means of public participation in the RMA regime. Preventing cumulative effects requires more fundamental plan changes, such as influencing the setting of minimum flows. Finally, water itself is undervalued under the current regime. The willingness of nonusers to pay to protect instream values and the protections for these values in ss 5–7 of the RMA illustrate that water does indeed have value in its own right.
One means to address these issues is to look to another system that faces similar concerns. New Zealand has received international recognition for its
policy changes regarding just such a system — the New Zealand Fisheries management system.104 Fish, like fresh water, are a communal resource that face overexploitation as part of the national and global commons. The New Zealand fisheries regime was overhauled to address these issues, and there has been interest in applying the lessons learned from this experience to cope to other similar resources.105
5. FISHERIES LAW
5.1 Introduction to Fisheries Law
The New Zealand Quota Management System (“QMS”) for fisheries was intro duced by the Fisheries Act 1986.106 The system places limits on total available fishing catch for certain species, which can be reviewed annually. The total available catch is divided between extractive users — predominantly commer cial and customary users, and to a lesser extent recreational users.
The basis of a quota management system is that market mechanisms will relay signals regarding the scarcity of a resource (in this case fish). In the envi ronmental context these systems can be used where there is a scarcity of some resource relative to its demand. Access is limited to some fraction of the total amount of the resource, thus promoting its conservation.107 The systems are adjustable upon review, usually to take into account incomplete knowledge regarding the resource in question.
These systems can also integrate the trading of access rights, such as in the case of the QMS. The purpose of this is to promote the principle of economics that the trading of rights will place them in the hands of the most efficient users.108 An example of a similar system is the international carbon trading regime set up by the Kyoto Protocol, where the right traded is the right to emit greenhouse gases rather than to use a specific resource.
Wallace identifies a variety of hurdles that have to be overcome to effectively implement a quota system. These include the framework of controls in which the market will function, the basis of the allocation of quota, and who should bear the financial losses caused by adjusting the total allowable quota.109 There is also a need to define the rights of the permit holders. These rights can be
equivalent to property rights and so unalterable by an authority after they have been granted. Alternatively, they can also be open to alteration on the basis of new information or new pressures of allocation. Finally, there is the need within a quota system to define the rights of advocates other than quota holders, such as environmentalists and recreational users of fish.110
Quota management systems tend to transfer the entitlements and duties involved with management of the resource away from society and towards the quota holders.111 The implementation of such a regime tends to have an aspect of environmental motivation, where a resource is seen to be currently or potentially under threat in its own right, or its usefulness to human stakeholders appears to be under threat.112
Among the values taken into account by a quota management system are “bequest values”, or the value of leaving something behind for the next generation.113 Bequest values are akin to the value of maintaining intergener ational equity. Another value that is often underrepresented or not represented at all in quota systems is “existence value”, or the value of knowing that something exists even if you will never use or even see it.114 Both of these sets of values are difficult to quantify in monetary terms.
One of the primary difficulties of controlling a resource by assigning a maximum allocation to be divvied up among users is achieving an accurate deter mination of what that allocation should be. In these situations the precautionary principle could provide administrative guidance, mandating that in situations of scientific uncertainty regarding the effects of an activity the regulatory body should err on the side of caution. This could be particularly successful as the precautionary principle is rapidly evolving into customary international law. However, in practice the principle is often interpreted “softly”, yielding little functional effect.
Another difficulty of implementing a quota management system is deter mining what parties receive an allocation when the system is put in place. When the possibility exists that current rights holders could lose their rights completely, they often receive some compensation when their rights are sold at auction.115 Existing rights holders can also be given an existing use right, or they could simply be ejected from the system without compensation.
5.2 The Fisheries Act
The quota management system for New Zealand fisheries was introduced in the Fisheries Act 1986. The Act created a Quota Management System (“QMS”) that set the Total Allowable Catch (“TAC”) of certain species of fish. The TAC itself contained a subset of catch available for commercial interests, called the Total Allowable Commercial Catch (“TACC”). Upon the enactment of the Fisheries Act, the government divided the TACC among existing rights holders based on their historic catch.
Under the 1986 regime, fisheries were allocated rights to a certain catch by its weight, and the government actively bought and sold catch in the fisheries rights market. Small users were eliminated during the initial allocation, while the remaining users were allowed to actively trade their rights. The government intended to make money through the system by buying up fishing rights from users when stock was low (called buybacks to retire quota)116 and reselling these rights when the fish stocks increased at a profit.
The Fisheries Amendment Act 1990, however, abandoned this approach in favour of the allocation of per cent TACC rather than absolute weight of catch. This approach was thought to hold less risk to the government. Under this current regime, even if TACC changes, the right to a certain percentage of the catch is unchanged. The Fisheries Act got a further overhaul in the Fisher ies Act 1996, the intent of which was to require more explicit consideration of environmental factors and the needs of future generations than the previous act. However, to date little has been done to give these requirements effect.117
The Purpose of the Fisheries Act 1996 is to “provide for the utilisation of fisheries resources while ensuring sustainability” (s 8). Importantly, “utilisation” is further defined in s 8 to means “conserving, using, enhancing, and developing fisheries resources to enable people to provide for their social, economic, and cultural wellbeing”. Thus, ideally, conservation of fish stocks would play an important role in the interpretation of the Act.
Section 9 states that persons shall “take into account” the maintenance of associated or dependent species, maintenance of biological diversity, and protection of habitat of significance to fisheries management (my italics). Section 10, “Information principles”, seems to incorporate the precautionary principle into the fisheries management regime. It states that persons shall take into account any uncertainty and should “be cautious” when information is uncertain or inadequate. Scientific uncertainty should not be used as a reason to postpone any measure intended to achieve the purpose of the Act (namely to provide for utilisation while ensuring sustainability).
Section 12(1)(a) states that the Minister must consult with all persons who have interest in the stock or the effects of fishing, including Maori, environmental, commercial, and recreational interests. Furthermore, the setting of the TAC and TACC is intended to take into account environmental, economic and social considerations under s 13(3). The primary basis for determining the TAC is to allow for the Maximum Sustainable Yield (“MSY”) of the fish species. Unfortunately, the stock status is unknown for a majority of stocks, and so the Maximum Sustainable Yield cannot be determined with any accuracy.118 Despite the fact that the Fisheries Act provides a framework for sustainable fisheries, the reality of the regime is another issue entirely. Despite the supposed consideration of the precautionary principle, and the basis on sustainable maximum yield, many stocks are fished well below this level. For instance, the Puysegur orange roughy fishery had to be closed in 1998 after stock crashed to 7 per cent of its unfished state in only eight years of fishing under the quota
A 2004 report by the Royal Forest and Bird Protection Society shows that this trend has changed little since 1998. According to the Society’s Conservation Manager Kevin Hackwell, “Around half of New Zealand’s fisheries are clearly not sustainable because they are overfished, poorly managed, have high bycatch, damage marine habitats and/or have poor information about the state of the fishery”.120 No New Zealand fishery received a green rating from the Society, which would indicate a wellmanaged fishery with low habitat damage and bycatch. “Twentythree of New Zealand’s 62 fisheries kill significant numbers of seabirds, 50 cause habitat damage, and all but two are responsible for adverse ecological effects ....”121
The cause of the fishery regime’s failure appears to be the entrenchment of industry voice within policymaking. Wallace found that, as of 1997:122
Of the thirtysix stocks discussed, the industry wanted catch limits increased in five for which limits were proposed to be unchanged. They resisted proposals for reductions in eleven; advocated a lesser cut than proposed for two; and wanted an increase for three which the Ministry proposed to hold or increase. For fifteen of the stocks the industry accepted no change. In no case did they propose a cut when one was not already suggested.
As this shows, stakeholders in the fisheries regime take their allotment as a
right. They fight tooth and nail when the Minister tries to reduce TACC for any given species.
Another prime example of the stance of the fishing industry is NZ Fishing Industry Association v Minister of Fisheries.123 In 1997 the Minister tried to impose catch limits on snapper in order to rebuild stock to the point where it reached Maximum Sustainable Yield. The Fishing Industry took the Minister to court, primarily delaying any implementation. The judge chastised the Industry, saying that the rights inherent in a quota are not absolute, but rather are subject to the provisions of the legislation establishing them.124 The Fisheries Act “cast on the Minister a prima facie duty to move the fishery towards MSY, if not already there, by such means and over such period of time as the Minister directed”.125
Despite s 12(1)(a) mandating consultation, there is little standing for non commercial interests in the assessment of TACC. “The dynamic effect of this has been that the evolution of institutional arrangements has intensified the standing and power of commercial interests.”126 The Fisheries QMS has created a rightsbased approach in which only one set of parties — the commercial fisheries — has clearly defined rights. This in turn leads to the misconception that they are the only party with rights.127 Coupled with poorly defined/poorly limited rights of quota holders, a lack of implementation of environmental obligations has yielded an unsustainable regime.
Further exemplifying these failures is a complete lack of precautionary thinking on the part of the Minister and the commercial fisheries. In Greenpeace New Zealand Inc v Minister of Fisheries,128 Greenpeace argued that lack of information regarding orange roughy at Chatham Rise merited more substantial reductions of catch on the part of the Minister of Fisheries. Although, at the time, the 1983 Act made no mention of the precautionary principle, Greenpeace argued that through New Zealand’s obligations to international law the precautionary approach must be applied. The Fishing Industry Association, however, argued that “the research into the fishery has not yet been sufficient to establish that the concerns of the applicant or the Ministry scientists are justified and sees an excessive reduction as being not only unjustified, but as imposing serious and unnecessary losses on the industry”.129
The Court found that the precautionary approach indeed “ought to be
applied”, but that the associated mandate to “be cautious” does not require that the most conservative approach be taken, but rather should be a weighing not a decisive factor.130 In essence, by considering the issue at all the approach had been applied. This is an approach to the precautionary principle that courts have often taken, severely diminishing the principle’s functionality. However, the case does establish that the precautionary approach ought to be applied in environmental decisionmaking as a principle of international law.
Despite the need to “take into account” the information principles laid out in s 10 of the Fisheries Act, it is safe to say that these principles receive minimal attention. Neither the Industry nor the Minister has applied a “strong” version of the precautionary approach in these circumstances, instead taking account of the principle and then promptly discarding this account. Part of the blame may rest on the fact that most of the research on fish stocks is done by the Industry itself, which appears to have no interest in finding an accurate assessment.
Unlike the RMA, the Fisheries Act does not provide obvious opportunity for the public to impact decisionmaking.131 The obligations discussed in s 13(3) towards social and cultural, as well as economic, factors to be taken into account have negligible weight in the overall regime, especially now that the system is primarily in the hands of the fisheries themselves. Society also receives no direct revenue from the Industry in return for its access to fish.
The lesson to be learned from the fisheries regime is that any implementation of law cannot be divested from government and public oversight. Those to whom the access to a resource is granted should pay for all required monitoring, which should be done outside of the industry itself. The userpays principle has been taken by the fisheries to mean that the users should have dominant voice in all affairs. The unfortunate reality is that fisheries do not want sustainable maximum yield. Rather, they want maximum profit. The quota management system has great potential in the domain of water allocation, so long as the interests of the public and the environment are not excluded from the system as they are in the fisheries regime. A strong government oversight is mandatory, despite what effects this might have on the “purity” of rights allocation.
5.3 Applying the Fisheries Regime to Fresh Water
The fisheries regime is built on a very solid concept. The allocation of TACC allows the government to force an agenda of conservation on resource users. The regime is also adjustable with changes in fish stocks, unlike the minimum flow regime for fresh water. While fishing catch varies with environmental changes, consents to take water by volume remain unaffected during dry or rainy
spells. The allocation of a total allowable catch also potentially allows for the protection of instream interests. Maintaining TACC as a subset of TAC ensures that recreational fishers have access to catch of their own. Furthermore, those who appreciate the existence value of fish can be assured that TAC is less than the total amount of fish in the sea, and is set to allow for the fishes’ continued survival. Lastly, the fisheries regime incorporates the trading of rights, which should allow those rights to move to the most efficient and necessary uses.
Unfortunately, the fisheries regime has had limited success in its actual implementation, as discussed above. Its failures illustrate the importance of providing for participation of all interests rather than only abstractive/out ofstream interests. Applying a fisherieslike regime to water will also be complicated by the complexities unique to fresh water. For instance, water has a variety of enduses ranging from power generation to watering golf courses. A successful water regime will need to accommodate some prioritisation of these enduses.
6. WATER ALLOCATION AND RIGHTS TRADING
As discussed previously, there are underlying difficulties to managing water as a common, and “free”, property resource. These difficulties include the control of access to all potential users (nonexcludability) and the fact that each new user can subtract from the welfare of the others (subtractabillity).132 New Zealand’s solution has been the firstcome firstserved principle. Unfortunately, this principle fails to provide a proper valuation for water and neglects the responsibilities laid out in ss 5–7 of the RMA. It also provides no impetus for conservative use, cannot prioritise enduses, and makes it difficult to advocate for instream values against cumulative effects.
The question then becomes whether more efficient and functional allocation regimes are available. Butcher found that to achieve allocation efficiency there must be:133
The security of ownership for those with property rights is an important difficulty posed by the water resource, and proves much more complex than in the QMS regime for fisheries.
Section 122(1) of the RMA states that “a resource consent is neither real nor personal property”. However, in Aoraki Water Trust v Meridian Energy Ltd,134 the Court appeared to find the opposite. The Court found that Meridian Energy’s consent to use available lake water for its hydroelectric plant in South Canterbury did limit Environment Canterbury’s powers under s 104 (considerations of applications) to grant water permits, as these powers reduced the water available to Meridian. The same was also to apply to the Waitaki Catchment Water Allocation Board’s powers to establish a regional water plan under the Waitaki legislation.
Thus, permits were found to be qualitatively equivalent to property rights. Restriction of Meridian’s consentassociated rights was stated by the Court to be in conflict with the purpose of the RMA towards sustainable management s 5, efficient use s 7, and the authority granted in s 30 when the permit was first issued.135 This case, however, reflects limited judgment on the part of the regional council that had renewed Meridian’s consent, which was very permissive and did not provide any restrictions for future use (a necessity in hindsight).
Section 128 of the RMA does in fact provide those reasons for which consent conditions can be modified. These include addressing any adverse environmental effects caused by the exercise of the consent and for any other purpose specified in the consent. Since the Aoraki Water Trust decision, councils are far more likely to include the condition on consent applications that the consent can be modified if appropriate. Moreover, councils must retain this authority if they are to successfully carry out their obligations to the environment spelled out in the RMA. A more “pure” property right would prevent them from doing so.
Section 128, however, is not the only factor diluting the purity of water rights. Water itself is an inherently unpredictable resource. Droughts can occur at any time, as can floods. This makes it difficult to transfer access rights on the basis of historical or predicted rainfall. Rights also become decreasingly secure as more users draw from a water source. Higher numbers of users increases the chance of hitting a minimum flow. When minimum flows are reached, regardless of the cause, users face the possibility that their rights to take water can be taken away completely. Thus while the QMS gives strong recognition of the rights of quota holders and clearly defined access to fish, this is not equally available under the RMA water permit regime.
That said, the creation of a water rights trading regime or market, as exists in the fisheries regime, has been used in some regions of New Zealand as a
134  NZHC 820;  2 NZLR 268;  NZRMA 251.
135 Ibid, para 28.
solution to the allocation problem. The RMA permits trading of water permits on a small scale in s 136. Permit holders can transfer their water abstraction permit to another person at another site in the same catchment if expressly permitted to do so in a regional plan, or if approved by the regional authority. Allowing the transfer of allocations moves water to those users who value it most highly. “Water transfer is not desirable in itself, but is a means to increase the economic efficiency of water use.”136
Irrigation schemes already exist where a fair amount of inseason transfer occurs. Within these schemes, water is divvied out to scheme members on a schedule, and if someone does not want their water on a given day it is redistributed to other properties. The Waimea East Irrigation Scheme, using this approach through drought, was able to avoid any individual shortfall.137 It is important to note, however, that these are not strictly trading regimes. Their success hinges upon the fact that additional water is not paid for, and so attitudinal barriers towards markets do not come into play. In addition, in these schemes transfers are kept between scheme members, so there is no fear of new uses and users gaining control of the resource.138
Where permitoriented trading regimes exist, such as in the Waimea groundwater system in the Tasman District and the Wairau system in the Marlborough District, very little trading actually occurs. Robb found that 3 of 4 users supported the water transfer concept. However, in trading regimes only 4–10 per cent of water would actually change hands.139 The primary barriers to permit transfer are listed by MAF:140
These barriers are universal, as seen in the case of Chile, one of the first coun tries to explore a water trading scheme. Lack of water scarcity meant very rare trading, except where there existed local relative scarcity. A lack of means to
shift water from one place to another made it difficult for trade to take effect. There is also a tendency in people to balk at the separation of a piece of land from its normal water supply.141
Among the primary concerns of water users are the fear of permanent loss of access to water and a perception that water is entrenched in land value. Users are often unwilling to trade away their water rights in a water market during periods when they do not need those rights for fear that when they need water again they will not be able to get access back. Agricultural users are also very unlikely to switch from irrigation to dryland farming. Preparing a farm for irrigation involves significant sunk costs, and selling a water right is seen as akin to selling the land itself. This holds true even if the land use could be changed and the action would be compensated.142 Strong objection is raised to the idea that a landowner could produce less than the full potential of his land and be compensated for reduced production.143
The trade of water rights also conflicts with the values of established rights holders — particularly irrigation users. Farmers do not like the idea of corpor ations buying up water rights and then turning farming into an industry.144 Nor do they want to see water going towards industry and commercial interests rather than agricultural interests.145 Fears of the encroachment of larger corporate interests are not unwarranted, as evidenced by the elimination of smallscale and seasonal New Zealand fishers without compensation prior to the establishment of the QMS.
From the perspective of regional authorities, initial consent conditions may not logically transfer to new uses, or new uses may require different conditions. Councils are often active in the promotion of rights transfer when requested by individual users.146 However, they are rarely proactive in establishing trading markets.
There also exists little incentive for consent holders to trade their rights when the opportunity does exist. There are no barriers of cost in place to prevent users from holding their consent even if they are not using it. Thus, even if some profit could be made from trading of the water right, there is little incentive to give up the right in the face of the possibility that access could be permanently lost through trading. While users tend to be comfortable with inseason trans fer as a practical means to help others while retaining their water right, their discomfort increases with leasing and permanent transfer.147
Finally, permit trading regimes simply do not work in catchments with few users, or in any catchment that is not near maximum allocation. Water markets are not liquid — it is impossible to trade out of your catchment. Therefore, in markets that are not completely allocated, users will have no reason to engage in water rights trading when they can instead simply obtain a consent to take water for themselves. In these catchments nothing changes. There continues to be no conservation impetus, water does not move to its best use, and water is still not given proper valuation. Where trading does occur in small catchments, there are often too few potential users to allow a proper valuation of the resource, leading to overvaluation for fear that others will take the resource in its entirety.148 “The reality in most New Zealand catchments is a small number of water users of which only a percentage will consider buying or selling water in a given year.”149 Ultimately, water must be scarce for a trading system to function. There also needs to be motivation to trade — for instance, the recognition that the current system will some day be inadequate.150 Scarcity of water creates an obvious and explicit value. This scarcity can be created naturally by demand exceeding
supply, or artificially by closing or limiting access to water for abstraction.151 One of the primary recommendations of Robb is to create further incentives
to permit transfer, including charging for water itself. It also suggests further investigation of barriers to water storage, which could help alleviate concerns regarding fragility of a water right, such as variation with changing water levels or the number of other users. The report also recommends further promotion and encouragement for permit transfers. There is “considerable potential to improve the efficiency of water allocation by more accurate information on peak needs and patterns that could help better match use with allocation”.152
The MAF report on barriers to water transfer concludes that it is “dubious” regarding the likelihood that water transfer will be widely used under the current allocation framework. The various issues, including infrastructure, limited markets, and lack of water storage, means that transfer will only take place at the margins. However, it suggests that a more fundamental change, including charging for water, may allow such programmes to become successful.153 The reality is that “there are a number of cost and attitudinal impediments to overcome before a regime could be accepted and operate”. Furthermore, limited scarcity and small catchments mean it is not appropriate in all circumstances.154
7. A PROPOSAL FOR THE VALUATION OF WATER
7.1 Addressing Flaws in the Current Regime
Clearly, problems persist even when water trading regimes have the potential to be put into place. There are few incentives for trade to occur, and there is minimal cost to hold a resource consent even if it is not being used. Trading also fails to take into account any social benefits derived from water’s enduse. For instance, a farmer may use water for irrigation, which benefits his community by providing food and jobs, but then sells this right to a forestry company, or to a fresh streamwater bottling company.
Water has value that is not accounted for in the consent regime. This is shown by comparing the amount users in Christchurch are willing to pay to preserve instream values as compared to the price that outofstream users actually pay councils to receive their consents. Trading of water rights can move water to where it is most needed (when trading occurs), but it is still not a sufficient regime.
Under the current system of firstcome firstserved, councils cannot ensure that their duties under sections 5–7 of the RMA are performed. It is not possible to avoid, remedy, or mitigate any adverse effects of water allocation of a first come firstserved basis. Nor is it possible to have particular regard for efficient use and development of the freshwater resource. Even in a rights trading regime, there is limited opportunity to reward efficient use. The “use it or lose it” approach to allocation in fact promotes the opposite — maximising water use once a consent has been granted regardless of diminishing returns.
As the actual users of water resources are not charged for water itself, the costs of its use are instead borne by the environment, ratepayers, and nonusers (such as those who appreciate intrinsic value, or ecosystem value). Furthermore, those who are denied resource use under the firstcome firstserved regime receive no compensation for losing this access right.155 While this is not a problem when concerned with a limitless resource, when a resource is limited by minimum flow regimes and limited aquifer refill potential, users lose the ability to make use of their rights elsewhere. Without an active trading regime in place, such users cannot even buy their way into resource access (regardless of the value or efficiency of their intended enduse).
Finally, water rights trading only functions in fairly established markets, and even in these markets, trading is rare. Furthermore, within a purely tradebased regime, economics ultimately dictates enduse rather than society. While this promotes efficiency, it removes the authority of regional councils to affect end use of resources by directing them to socially responsible or necessary enduses.
Several options are available to help overcome these barriers. One of these is to abandon the firstcome firstserved approach to water allocation, and instead allow councils to be proactive in enduse decisionmaking. This approach, however, is very unlikely to take hold. Councils are unwilling to be held responsible for picking the “winners” and “losers” of resource allocation. Moreover, such a regime would require information regarding what uses were more reasonable or appropriate — a question on which consensus is unlikely to be reached.
Another possibility is to set abstraction limits in unstressed catchments. For example, if a catchment is currently at 40 per cent allocation, a regional authority could set the total available abstraction limit to 60 per cent, and allow a market to develop within this artificial constraint. Drawing still further from the Fisheries Quota Management System, users could be allocated percentages of this artificial total available volume of water. This would have several benefits. First, total available water could be adjusted in realtime to account for environmental changes, while each individual user’s right to a percentage of this total allocation remains unchanged. Secondly, regional authorities could in turn reduce this total allocation over time, forcing water conservation and increased efficiency among users.
Neither of these possibilities, however, provides a true valuation of water itself. Therefore, regimes for charging must be investigated, including charging for both the right and the use of water. Among the benefits of such a regime, putting a price on the water resource should provide incentive for water transfer in a market setting. Holding onto unused water will no longer be a costfree exercise. It will also promote efficiency, providing a financial incentive for decreased use. Finally, charging for water itself allows the government to collect money from users with which to compensate potential users who are denied access to the resource and to remedy and mitigate instream values. One way to achieve the latter might be to use the revenue collected from users to buy back fresh water in a market setting for environmental protection. This mirrors the intent of the original fisheries regime, wherein the government bought back stock to protect sustainable populations.
7.2 Proposed Water Valuation
The first step in setting up a waterpricing regime is to determine a means of pricing. MAF’s 2001 Water Allocation report suggests five methods of water valuation, as set out in Table 2 below.156
Table 2. Methods of water valuation
Method of valuation Description
Volumetric pricing Users are charged a constant price for every unit of water. The best or most appropriate price is difficult to determine, and should be set near marginal cost. Volumetric pricing is similar to the Auckland regime for endusers as paid to retailers like Metrowater. The regime carries high implementation/administration costs.
Output pricing Output produced from water use is taxed. This method usually focuses on crops grown with the aid of irrigation.
Area pricing A fixed fee is charged per hectare for the right to receive irrigation water. Area pricing is only applicable to water used for irrigation purposes. There is no marginal cost for additional water used, and the system is easy to implement.
Tiered pricing Water is charged for by unit, as with volumetric pricing. However, the price increases with each additional unit of water. High implementation costs.
Twopart pricing A fixed annual fee is charged in combination with an additional volumetric price.
Water markets As discussed above, markets are highly efficient when well informed and in combination with pure rights. Trade promotes economic efficiency.
Among these options, both output pricing and area pricing are less valuable because their focus is limited to agriculture. Furthermore, both of these methodologies do not directly value the amount of water used, so while there may be incentive to limit irrigation there is no incentive towards efficiency once the decision to irrigate is made. Water markets, in turn, have all of the draw backs discussed in Part 6 above, so while they may be used to complement a waterpricing regime they are not sufficient on their own.
Tiered pricing already has some advocates in New Zealand. The New Zealand Green Party, for example, has proposed a tiered pricing system wherein the first unit of water is free, and charges increase for each subsequent unit.157 The first unit would provide for reasonable household consumption and would be funded by rates rather than through direct charges.
Tiered pricing could be used to complement a twopart pricing regime. Two part pricing allows easy incorporation of the current consent application fees that are charged by regional authorities. These fees would be complemented by a volumetric fee, which could be charged at either a flat or a tiered rate.
In winter 1992 New Zealand faced a water crisis. An extended deficit of rainfall threatened to bring the hydroelectricity industry to its knees, and electricity users faced the potential of rolling brownouts. Inflows to hydropower storage lakes were at their lowest in 60 years of recordkeeping.158 Rather than fall victim to the weather, however, New Zealanders voluntarily altered their habits. During the peak of the crisis, electricity use was voluntarily reduced by 20 per cent across the entire country. Domestic consumers, comprising 37 per cent of the system load, contributed 60 per cent of the power savings.159
The 1992 crisis has direct implications for freshwater management. When impetus is provided to use water efficiently, efficiency can be achieved. This impetus can be an environmental one caused when water is stretched to its limits, or, alternatively, it can be a forced economic one provided by the government to ensure efficient use and the protection of instream values.
The QMS for fisheries provides the context for such a regime to be applied to fresh water. The allocation of water by percentages of an available total rather than by absolute volume allows allocation to be far more reactive to environmental conditions. However, such a system on its own does not alleviate the need to promote efficiency, nor does it avoid the shortfalls of the first come firstserved regime. Water markets are also unable to provide a complete solution for New Zealand’s water allocation, particularly in systems that are yet to reach maximum allocation.
Water pricing helps to fill in the gaps of these regimes. Charging a volu metric fee for water use provides a direct incentive for water conservation and efficient use. A pricing regime also allows regional authorities to collect an appropriate reimbursement from resource users that accounts for the value of water itself. This money can be used by councils to ensure a more representative accommodation of instream values — an interest that has little voice under the current consent system.
There are, however, significant barriers to instituting such a system. One of the primary barriers is that many users have a philosophical objection to paying for water. There is a longheld belief that water, as a public good, should not be treated as a commodity. Yet, if water is a public good that should carry no value, how is it that farmers and industry can abstract this public good for private profit? It is important to realise that charging for water on the part of the government is very different from privatisation of the resource. It can be used as a means to further ensure equity of distribution rather than a means to entrench established users.