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Hudspith, Ezekiel --- "Freshwater management in New Zealand: a challenge for ecology, equity and economic efficiency" [2012] NZJlEnvLaw 9; (2012) 16 NZJEL 277

Last Updated: 30 January 2023


Freshwater Management in New Zealand: a Challenge for Ecology, Equity,

and Economic Efficiency

Ezekiel Hudspith*

Fresh water is a resource of considerable economic, cultural, rec- reational, and environmental significance. The management of freshwater resources in New Zealand is becoming an increasingly difficult task, confounded by the various and sometimes conflicting values and interests associated with water. The existing Resource Management Act regime for water has failed to cope with increasing constraints on the extractive and assimilative capacity of our water resources, and a reform programme is now well under way. The Government’s “New Start for Fresh Water” also marks a new emphasis on economic efficiency in determining how water is to be allocated and traded amongst users. While the outlines of this new regime are starting to become clear, there is still much to be decided. This article considers water management in New Zealand in terms of sustainable development principles, and in particular the dimensions coined as “Ecology, Equity, and (Economic) Efficiency”. It also examines fresh water as having characteristics of a “common pool resource”, and the challenges this presents for its management. Armed with these conceptual tools, the article goes on to consider the shortcomings of the existing water regime, the likely changes to come out of the “New Start” programme, and some of the important design choices that will need to be made along the way.

*LLB, BSc, Victoria University of Wellington. This article was written as a paper in partial completion of a Master of Laws (Hons) in Environmental Law at the University of Auckland. The author has recently joined the Resource Management team at Russell McVeagh.


Fresh water is a resource that is absolutely essential to life. It is also one that is becoming increasingly difficult to manage, and the management of which will be crucial to any kind of sustainable future. In New Zealand, freshwater supplies have historically been adequate or plentiful, but have recently begun to come under pressure due to increasing demand. As a result, an increasing number of catchments are now considered over­allocated or close to over­ allocation. There is a broad consensus on the need to revisit the way in which fresh water is allocated and managed. A reform process is currently under way, and marks a shift in emphasis from environmental protection to the more efficient use of fresh water.

Beyond their indispensability for life, fresh water and waterways are also of significant economic, recreational, cultural and ecological value. Fresh water can be conceived of as a “common pool resource”, given the difficulty in policing its uses and their effects on others. In order to avoid a “tragedy of the commons” scenario1 and improve the efficiency of water use, some have called for greater clarity and certainty of water rights through the reform process. Others have voiced concerns about the potential for privatisation.

The future management of freshwater resources is a textbook sustainability challenge, as it requires the ongoing stewardship of a renewable resource in a way that manages competing uses, values and demands. Sustainable develop­ ment principles are applicable, and are brought to bear through the concept of “sustainable management”, in New Zealand’s Resource Management Act 1991 (RMA), which is the principal statute providing for the management of fresh water. In particular, this article will consider the management of fresh water and reform proposals in terms of the sustainable development themes of equity, ecological protection and economic efficiency,2 which find expression within the broader RMA framework.

After briefly exploring these themes as a framework for analysis, the article will consider the current state of New Zealand’s freshwater resource, as well as the difficulties posed by the current statutory regime. The current work programme and future developments will then be discussed with a view to optimising environmental protection, economic efficiency and equity in the management of freshwater resources going forward.

1 Garrett Hardin “The Tragedy of the Commons” (1968) 162 Science 1243. 2 Sometimes referred to as the “three Es”.


This section will briefly outline the concepts of sustainable development and “sustainable management” under the RMA, as well as the concepts of equity, economic efficiency and ecological integrity (or sustainability) as they might be used to evaluate water management initiatives.

2.1 Sustainability and Sustainable Development

“Sustainability” refers to “the phenomenon of being able to maintain resources or assets forever”;3 if an activity or system is sustainable, then it can continue indefinitely. Sustainability has also been recognised as an ethical or legal principle, linked to the promotion of ecological sustainability4 — and has been frequently compared to other ethical concepts such as liberty, equality and justice.5

Ecological sustainability can be defined as the ability of an ecosystem to continue indefinitely in its present state;6 and means the absence of permanent change caused in an ecosystem by human activity.7 As such, the sum of human activities can be considered “ecologically sustainable” if no ecosystem change results. However, to determine the sustainability of a particular activity or impact it is necessary to consider not whether it causes any ecosystem change in isolation, but whether it has that effect in combination with all other human activities in the ecosystem.8 This recognises that adverse environmental impacts are cumulative within space (for example, different parts of a river catchment) and also over time.

Sustainable development was famously described in the Brundtland Report of 19879 as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs”.10 The

  1. PK Rao International Environmental Law and Economics (Blackwell Publishers, USA, 2002) at 19.
  2. Klaus Bosselmann The Principle of Sustainability (Ashgate, Surrey, 2008) at 53. For example, Bosselmann defines sustainability as “the duty to protect and restore the integrity of the Earth’s ecological systems”.
  3. SD Upton “Purpose and Principle in the Resource Management Act” [1995] WkoLawRw 2; (1995) 3 Wai L Rev 17 at 22; Justice Peter Salmon “Sustainable Development in New Zealand” (2003) 5 BRMB 13 at 15.
  4. Or, perhaps, on its present evolutionary trajectory.
  5. Bruce Pardy “Fast Ferries: New Equilibrium versus Ecological Sustainability” [1995] NZLJ 202 at 204.
  6. Bruce Pardy “Sustainability: An Ecological Definition for the Resource Management Act 1991” (1993) NZULR 351 at 361.
  7. The World Commission on Environment and Development Our Common Future (Oxford University Press, Oxford, 1987) [Brundtland Report].

10 At 43.

major themes of the Brundtland Report definition are intra-generational equity or social justice (the “essential needs of the world’s poor” were to be given “overriding priority”), inter­generational equity (preserving the ability of future generations to meet their needs), and concern for the environment.

There is broad agreement that sustainable development requires the integration of environmental, social and economic objectives,11 but many different views as to how this should occur. Various terms, concepts and models have been put forward to explain the appropriate interrelationship between economy, ecology and society.

For example, Bosselmann contrasts the concepts of “weak” and “strong” sustainable development.12 The hallmark of “weak” sustainability is that each of the social, economic and ecological sectors is assumed to be of equal importance.13 Bosselmann critiques this as conflating sustainable development with the mere integration of economic, social and environmental policies.14 “Strong” sustainable development, on the other hand, holds that the economy cannot exist in isolation from society, which in turn must be constrained by the limits of the environment. The three parts or sectors cannot be substituted for one another, and there is limited substitutability even within parts.15

Winter draws a similar distinction between the “three pillars model” of sustainability and the “fundament and two pillars” model.16 Under the former, the three pillars of natural resources, economy and society “coexist as equivalent entities”.17 Winter raises the concern that “[s]acrifices of nature, as commanded by prevailing short term economic or social interests, may become destructive for economy and society in the long [term]”.18

  1. Klaus Bosselmann “The Concept of Sustainable Development” in Klaus Bosselmann and David Grinlinton (eds) Environmental Law for a Sustainable Society (NZCEL Monograph Series, Auckland, 2002) 81 at 87. In other contexts sustainable development is linked to the “four wellbeings”: social, economic, environmental and cultural.
  2. See generally Bosselmann, above n 11; Bosselmann, above n 4. 13 Bosselmann, above n 11, at 91.
  3. Bosselmann, above n 4, at 1, 23 and 52. Bosselmann notes that in order to be able to identify and act upon potential conflicts between the three sectors or interests, it is necessary to know how they should be resolved.
  4. Office of the Parliamentary Commissioner for the Environment Creating Our Future: Sustainable Development for New Zealand (PCE, Wellington, 2002) at 35.
  5. Gerd Winter “A Fundament and Two Pillars; The Concept of Sustainable Development 20 Years after the Brundtland Report” in Hans Bugge and Christina Voigt (eds) Sustainable Development in International and National Law (Europe Law Publishing, Amsterdam, 2008) 25 at 25.

17 At 28.

18 At 28.

Winter therefore advocates the “fundament and two pillars” model, which contemplates that “socio­economic development remains ‘sustained’, i.e. bearable, supported by its basis, the biosphere”.19 Thus, “the biosphere becomes of ‘fundamental’ importance. Economy and society are the weaker partners, as the biosphere can exist without humans, but humans certainly cannot without the biosphere.”20

This model is represented by a stylised building, comprising “natural resources” as the foundation, the two pillars of “Economy” and “Society” standing on top of it, and the roof of “Future Generations” resting on them in turn.21 This metaphor is particularly apt to describe the relationship between water as a natural resource, and the economic or social (including cultural, aesthetic and spiritual) values or uses of that water.

While it is unrealistic to expect development to occur with no ecological change at all, the principal criticism of both the weak sustainability and three pillars models is that they can lead to a cumulative effects problem, whereby a series of trade­offs over time (for example, between environmental and economic values) ultimately lead to environmental degradation. Thus there is a concern that these models of sustainable development merely slow down the rate of degradation, rather than reverse it.22

2.2 Sustainable Management under the RMA

The concept of “sustainable management”, which forms the centrepiece of the RMA, is comparable to the policy or norm of sustainable development.23 The Act’s purpose set out in s 5 is to promote the sustainable management of natural and physical resources,24 and “sustainable management” is defined in subsection (2) as:

[M]anaging the use, development, and protection of natural and physical resources 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—

19 Winter, above n 16, at 27. Winter alludes to the dual meanings of the English word “sustain”: the temporal dimension of continuing indefinitely and also that of bearing or supporting.

20 At 19.

21 At 28.

22 At 28.

  1. One difference is that sustainable management is deliberately narrower, with less focus on intra­generational equity.
  2. Section 5(1). Per s 2, natural and physical resources are defined to include “land, water, air, soil, minerals, and energy, all forms of plants and animals (whether native to New Zealand or introduced), and all structures”.

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

This section was “intended to play a dominant and pervasive role”,25 and almost all decision­making functions in the RMA either refer back to the purpose of the Act or are “subject to Part 2” of the Act as a whole.26

It can be seen that the section has two broad themes: enabling people to provide for their social, cultural and economic “well­being” on the one hand, while simultaneously addressing matters of inter­generational equity, ecological sustainability, and the management of environmental effects. How these elements should be reconciled has been the subject of much debate and discussion.27

An “environmental bottom lines” or “high level constraints” approach — which corresponds more closely with “strong sustainability” — was adopted in earlier court decisions and by some commentators.28 However, ultimately the courts have adopted a so­called “overall broad judgment”29 approach, which corresponds loosely to a “weak” form of sustainable development.30

2.3 Equity, Environmental Protection and Economic Efficiency

The sustainable development models discussed above all feature the three interacting sectors of economy, ecology, and society. More precisely, it is possible to conceive of these themes as represented by the values or goals of

  1. BV Harris “Sustainable Management as an Express Purpose of Environmental Legislation: The New Zealand Attempt” [1993] OtaLawRw 3; (1993) 8 Otago LR 51 at 59.
  2. Part 2 also includes ss 6, 7 and 8, which provide additional considerations for decision­ makers relating to “matters of national importance”, “other matters”, and the Treaty of Waitangi.
  3. See Douglas Fisher “Clarity in a Little ‘While’” [November 1991] Terra Nova 50; John Milligan “Pondering the ‘While’” [May 1992] Terra Nova 50.
  4. See Simon Upton, Helen Atkins and Gerard Willis “Section 5 Re­visited: A Critique of Skelton & Memon’s Analysis” (2002) 10(3) RMJ 1.
  5. As articulated in North Shore City Council v Auckland Regional Council [1996] NZEnvC 23; [1997] NZRMA 59 (EnvC).
  6. This is insofar as it permits “trade­offs” between the three sectors (economy, ecology and society), as part of the “overall broad judgment” approach. For example, a proposal with a given level of environmental impact may be more likely to proceed if an equivalent (or greater) social or economic benefit can be demonstrated.

economic efficiency, ecological sustainability, and social justice (or equity) respectively. In this regard Bugge31 refers to sustainable development as involving the “integration of equity and efficiency, integration of long term environmental concerns into economic policy, and of all sectors of society”.32

Similarly, as a means of assessing the merits of a particular environmental policy or approach, Winsemius33 refers to the:34

3E criteria of being Effective (i.e., reaching the environmental objectives), Efficient (i.e., doing so at the lowest possible cost) and Equitable (i.e., sharing the burden among the members of a target group in a fair manner).

When examining the broader framework for managing a resource of economic significance such as fresh water, it is appropriate to examine the question of efficiency more broadly, and also to substitute ecological sustainability or integrity for environmental “effectiveness”. It is suggested therefore that the guiding values must be ecological sustainability, equity, and economic efficiency. An assessment of these concepts reveals the delivery of value to each “sector” of the sustainability model, regardless of which sector is ultimately prioritised.

These values all find expression within the RMA regime, and are discussed in that context below.

The concept of ecological sustainability, discussed above, is central to the RMA’s theme of “sustainable” management. In particular, s 5(2)(b) is focused squarely on ecological sustainability, as it refers to “[s]afeguarding the life­ supporting capacity of air, water, soil, and ecosystems”. The environmental focus of the RMA is also much broader than this, however, because s 5(2)(c)35 refers more generally to “[a]voiding, remedying, or mitigating36 any adverse effects of activities on the environment”. Notably, this extends to adverse social

  1. Hans Bugge “1987–2007: ‘Our Common Future’ Revisited” in Hans Bugge and Christina Voigt (eds) Sustainable Development in International and National Law (Europe Law Publishing, Amsterdam, 2008) at 3.

32 At 10.

  1. Pieter Winsemius in Jan M van Dunne (ed) Environmental Contracts and Covenants: New Instruments for a Realistic Environmental Policy? Proceedings of an international conference, held in Rotterdam, 14–16 October 1992 (Erasmus University Rotterdam, Rotterdam, 1993) at 5.
  2. At 6.
  3. As well as other references to effects on the “environment” throughout the Act.
  4. Notably, no priority is indicated among the actions of “avoiding”, “remedying” or “mitigating”.

or economic37 effects by virtue of the broad definition of “environment” within the RMA.38

Economic efficiency is an important goal in economic theory, and considered the “main reason why markets have been advocated as a management method”.39 Concepts of “productive”40 or “technical” efficiency reflect (in this context) the actual use of water and maximum beneficial output that can be achieved from it.41 The Land and Water Forum (LAWF) defines technical efficiency as “[t]he amount (say %) of water beneficially used in relation to that taken. It relates to the performance of a water use system, including avoiding water wastage.”42 “Allocative efficiency” relates to the optimal use of society’s resources for the maximisation of welfare, and focuses on resources being “allocated to the use which has the highest value to society”.43

Finally, “dynamic efficiency” relates (in this context) “to the use of water adjusting over time, in order to maintain or achieve allocative efficiency”.44 Thus, it is a measure of “whether the right investments, including in new technology, are occurring at the optimal time”.45

Economic efficiency is not included within s 5 RMA, which makes reference only to “economic well­being”. However, s 7(b) requires decision­ makers to “have particular regard” to the “efficient use and development of natural and physical resources” at both the planning and resource consent

  1. Part 11A excludes the effects of “trade competition”. 38 Per s 2, “environment” includes:
    (a) Ecosystems and their constituent parts, including people and communities; and

    (b) All natural and physical resources; and

    (c) Amenity values; and

    (d) The social, economic, aesthetic, and cultural conditions which affect the matters stated in paragraphs (a) to (c) of this definition or which are affected by those matters.

  2. Olivia Nyce “Water Markets Under the Resource Management Act 1991: Do They Hold Water?” [2008] CanterLawRw 5; (2008) 14 Canta LR 123 at 135.
  3. Brent Layton “Tradable Systems for Water: Best Use and Maximising Value” [August 2011] RMJ 27 at 29. Productivity corresponds to “whether something is being produced at the lowest cost possible, given the technology and the cost of inputs”.
  4. Nyce, above n 39, at 135.
  5. Land and Water Forum Report of the Land and Water Forum: A Fresh Start for Freshwater

(Land and Water Forum, 2010) at 63 [LAWF].

43 At 63.

44 At 63.

45 Layton, above n 40, at 29.

stages.46 The three dimensions of efficiency noted above can be broadly considered under this subsection.

Equity has been described as the “central ethical principle behind sustainable development”,47 and relates to the distribution of burdens and costs associated with the exchange or allocation of resources.48 Related considerations include the just distribution of the burdens of environmental damage and the costs of its prevention, and wider concepts of “environmental justice”.

Sustainable development models typically distinguish between inter­ generational and intra­generational equity,49 and the Brundtland Report focused on both of these. However, the RMA is limited in scope to inter­generational equity, or the concern for future generations. This is most clearly expressed in para 5(2)(a), which refers to “[s]ustaining the potential of natural and physical resources ... to meet the reasonably foreseeable needs of future generations”. However, in the context of freshwater management that direction perhaps adds little to the ecological sustainability envisaged in para 5(2)(b); the only additional value might be in the extent to which physical resources (man­made structures) might also provide for the needs of future generations.50

The omission of intra-generational equity in the RMA reflects a deliberate choice to focus on the environmental effects of activities rather than the activities themselves, and a view that the RMA was “not designed to be a comprehensive social planning statute”.51 It has been observed that “‘social justice’ or equity has a very limited role in the RMA”.52 Thus the RMA is generally not thought to be concerned with resources other than natural and physical resources, the allocation of totally new property rights in land, or compensation for property rights that are affected by the Act.53

However, issues related to equity might still be relevant under the RMA as adverse cultural or social effects in terms of para 5(2)(c), or otherwise as a failure to properly “enable” people and communities to provide for their social and cultural wellbeing under s 5(2). In addition, the Act’s emphasis on

  1. Nyce, above n 39, at 134.
  2. Shona Foster “Redirecting the Flow: The Growing Role of Intra­generational Equity in the Allocation of Water Rights” (2007) 7 BRMB 27 at 27.

48 At 27.

49 At 27.

  1. Section 2 defines “natural and physical resources” as including “land, water, air, soil, minerals, and energy, all forms of plants and animals (whether native to New Zealand or introduced), and all structures”.
  2. Upton, above n 5, at 24.
  3. Foster, above n 47, at 28.

53 At 28.

participatory public processes in decision­making is at least consistent with values of procedural fairness.


Managing freshwater resources in New Zealand is set to be an increasingly difficult task. This section will outline the inherent challenges in managing fresh water given its characteristics as a “common pool resource”, the current state of New Zealand’s freshwater resource, and the present statutory scheme for managing it.

3.1 Fresh Water as a Common Pool Resource

Freshwater resources are variable and complex ecological systems, prone to cumulative effects of human activities such as nearby land use, the effects of which on “water quality can take decades to become apparent”.54 Part of the difficulty is that fresh water has characteristics of a common pool resource, and may be the subject of a “tragedy of the commons” (as contemplated in Hardin’s seminal article) if its use is not properly managed.55 Ostrom defines “common pool resources”56 as resources that are “sufficiently large that it is difficult, but not impossible, to define recognised users and exclude other users altogether. Further, each person’s use of such resources subtracts benefits that others might enjoy.”57 Fresh water as a resource is characterised by these difficulties in controlling access to all potential users (“non­excludability”), and “the fact that each new user can subtract from the welfare of others” (“subtractability”).58

Ostrom explains that “[c]ommon pool resources that are left as open access resources — where anyone can enter and harvest — are likely to be overharvested and potentially destroyed”.59 The tragedy is “one of a lack of discernible ownership and control”.60 A free­rider problem arises because resource users are incentivised to overuse a resource for their own gain but to

54 Cabinet Office Circular “New Start for Fresh Water” (2008) at [17]. 55 Hardin, above n 1.

56 Elinor Ostrom “Sustainable Development of Common­Pool Resources” (2008) 50(4) Environment: Science and Policy for Sustainable Development 8.

57 At 11.

  1. Andrew Hayward “Freshwater Management: Water Markets and Novel Pricing Regimes” (2006) 10 NZJEL 215 at 245.
  2. Ostrom, above n 56, at 11.
  3. Laura Fraser “Property Rights in Environmental Management: The Nature of Resource Consents in the Resource Management Act 1991” (2008) 12 NZJEL 145 at 156.

the detriment of the community and of the sustainability of the resource itself.61 Avoiding such tragedies is commonly thought to demand a property­based solution because property ownership gives a person, community or government the power to control resource use.62

Hardin’s original article focused heavily on two of the possible solutions, being “centralised government and private property”.63 However, this has subsequently been criticised as an oversimplification because it ignores a third possibility, that of community ownership and control.64 It has been observed that, more accurately, the tragedy arises when the resource is open access (a “free­for­all”) rather than simply when ownership is held in common.65 Thus, while the tragedy of the “commons” is often cited as favouring the creation of private property rights over environmental resources, “it is more appropriately viewed as neutral with respect to the nature of the property system that should result”.66

Thus, there is a choice to be made between alternative solutions to the “tragedy of the commons”.67 Many of the arguments for private property rights solutions appeal to notions of economic efficiency.68 On the other hand, Fraser notes that those preferring regulatory responses generally fall into two categories; being those concerned about differentiated treatment of different stakeholders in the resource based on private property rights (in essence, a concern about equity), and those concerned that the irresponsible use of private property rights could detract from the goal of environmental preservation.69 It is suggested here that the “three Es” of efficiency, equity and ecological sustainability should be the primary criteria in identifying an optimal solution, as will be discussed below.

  1. Hardin, above n 1, at 1244. Hardin employed the metaphor of herders with unrestricted access to a common grazing area. Each herder was incentivised to add additional cattle beyond the carrying capacity of the resource, because the benefits of doing so were internalised but the costs of doing so were shared among all users.
  2. Fraser, above n 60, at 156.
  3. Thomas Dietz, Elinor Ostrom and Paul Stern “The Struggle to Govern the Commons” (2003) 302 Science 1907 at 1907.
  4. See Ostrom, above n 56, at 11.
  5. Fraser, above n 60, at 156; Ostrom, above n 56, at 15.
  6. Fraser, above n 60, at 156–157.
  7. An allusion to the title of Bruce Yandle and Andrew Morris “The Technologies of Property Rights: Choice Among Alternative Solutions to Tragedies of the Commons” (2001) 28 Ecology Law Quarterly 123.
  8. See generally Fraser, above n 60, at 157–160.
  9. Fraser, above n 60, at 160.

3.2 New Zealand’s Freshwater Resources

Compared with much of the rest of the world, New Zealand’s water resources are only mildly stressed. However, they are coming under increasing pressure as growing demand leads to “localised use beyond sustainable capacity” in many areas.70 The essence of the problem is that the current regulatory regime was not designed with a view to managing scarcity.

It has been estimated that New Zealand receives 500,000 million cubic metres of water from precipitation annually, and that about 5 per cent of this (or 25,000 million cubic metres) is abstracted for use.71 Of this extracted portion, approximately 80 per cent is used for irrigation and watering stock,72 11 per cent for industrial uses, and 9 per cent for the public water supply.73 Sixty per cent of the allocated water is from surface water.74

It must be noted that the total precipitation is not distributed evenly, as the prevailing westerly winds tend to mean the west coasts have a surplus of water while the east coast regions experience a shortage.75 Likewise, demand for water is also unevenly distributed and higher in regions of intensive agriculture. For example, the Canterbury region itself is dry but has around 70 per cent of the country’s groundwater resources, 58 per cent of nationally allocated water, and 50 per cent of water storage for hydroelectric power generation. It is also a base of dairying in New Zealand.76

It is estimated that the total nationwide allocation of water increased by 50 per cent between 1999 and 2006.77

  1. Hayward, above n 58, at 216.
  2. New Zealand Business Council for Sustainable Development A Best Use Solution for New Zealand’s Water Problems (NZBCSD, Auckland, 2008) at 9 [NZBCSD].
  3. Irrigation comprises 77% of this 80% portion, while stock watering makes up 3%. 73 NZBCSD, above n 71, at 9.
  4. Marilyn Bramley and Jeff McNeill “Up the Creek and Down the River: In­stream Ecological Values and Property Rights under the RMA” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 173 at 174.
  5. Hayward, above n 58, at 218.
  6. Klaus Bosselmann and Vernon Tava “Introduction: Water in Context” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 1 at 16.
  7. Bramley and McNeill, above n 74, at 174.

The projected continuation of these trends has given rise to concerns about both water quantity and water quality into the future. The two are distinct issues, yet quality is inherently linked to water quantity, because a reduction in quantity also means a reduction in the assimilative capacity of the water body to absorb discharges without suffering permanent damage.78 Water quality in New Zealand is generally declining, particularly in lowland water bodies. Urban waterways are highly polluted, and on a national level, “diffuse discharges now greatly exceed point source pollution”.79 Contamination from effluent, fertiliser run­off and other sources often leads to eutrophication and biological collapse or loss of habitat value.80

Recent declines in water quality are partly attributable to non­point or diffuse discharges such as run­off from agricultural land or in areas experiencing urban sprawl.81 This highlights a failure of integrated management (which can be seen as a central theme of sustainable development); land use has not been adequately managed in order to account for its effect on adjacent water bodies. While integrated land use management and water quality solutions are beyond the scope of this article, this is an issue that has received considerable attention from the current Government, the Land and Water Forum, and also Opposition parties. Accordingly, water quality­focused solutions are likely to form part of water reform initiatives.

Water scarcity is also becoming an increasing problem.82 The exact volumes abstracted are not known, but have been estimated at between 20 to 80 per cent of stream volumes.83

In relation to quantity, the principal problem is over­allocation of water resources — in 2008 it was estimated that most regions “have at least one river (surface water) or aquifer (groundwater) that is either fully or over­allocated, or likely to become so in the next one to five years”.84 Over­allocation is said to occur when “the amount of water allocated to consent holders exceeds the level required for the protection of the resource’s environmental values”.85

  1. Hayward, above n 58, at 218; Bramley and McNeill, above n 74, at 173. 79 LAWF, above n 42, at ix.
  2. Hayward, above n 58, at 218.
  3. NZBCSD, above n 71, at 10. 82 LAWF, above n 42, at ix.
  4. Bramley and McNeill, above n 74, at 174.
  5. NZBCSD, above n 71, at 4.
  6. Nyce, above n 39, at 132.

It is recognised that the water allocated in individual permits tends to be far in excess of the amount actually used by the consent holder.86 Once a consent is granted there is generally no incentive to use it efficiently (as water is largely unpriced), causing greater wastage than necessary. Finally, where councils have introduced metering so as to renew permits in line with the actual metered takes, this can lead to perverse “use it or lose it” incentives to use more water than needed in order to guarantee access in the future.87

As a result of this system, allocated water tends to go unused, is used inefficiently, or is not allocated to its highest-value use.88 In the event that all allocated water was called upon at the same time, the ecological consequences and effects on water quality could be severe. Over­allocation is also a problem for the economic sector. In addition to the inefficiencies noted above, over- allocation means a less reliable water supply which in turn affects the viability of dependent activities.89

3.3 RMA Regime for Water

The passage of the RMA revolutionised environmental law in New Zealand by bringing together the management of almost all activities and effects relating to land use, water use (including discharges) and discharges to air. The salient features of the regime as it applies to fresh water are summarised below.

“Water” is defined in the RMA as including fresh water, coastal water and geothermal water, whether flowing or otherwise and regardless of whether it is above or below ground. An exception is made for “water in any form while in any pipe, tank, or cistern”,90 meaning that such water is largely outside the ambit of the RMA regime.91

While in­stream, water is often thought of as being publicly owned or owned by the Crown, although traditionally water in its natural state is incapable of legal ownership.92 However, all rights to take, use, dam and divert

86 At 133.

87 At 133.

  1. In other words, the current system does not incentivise technical efficiency, and fails to deliver allocative efficiency.
  2. Nyce, above n 39, at 133.
  3. Resource Management Act 1991 [RMA], s 2.
  4. Except where it constitutes a use of land, or when discharged.
  5. Significantly, this position may be subject to change, following a recent Waitangi Tribunal claim brought by the New Zealand Maori Council, as to the status of water under the Treaty.

water have been vested in the Crown.93 The power to allocate these rights to water users is delegated to regional councils under the RMA.94

Although the RMA provides that resource consents (including water permits) do not constitute real or personal property,95 recent case law develop­ ments have demonstrated that resource consents are sufficient to convey a property­like statutory interest, or are arguably equivalent to property in water.96

The primary restriction placed on freshwater use under s 14 RMA is that no one may take, use, dam or divert fresh water unless the activity is expressly allowed by a rule in a regional plan, a national environmental standard (if any), or a resource consent. An exemption is provided if the water is required to be taken for an individual’s reasonable domestic needs, for the reasonable needs of an individual’s animals for drinking water, or for fire-fighting purposes.97

Accordingly, resource consents are required for most substantial water takes. The ease with which such consent can be obtained depends on the rules and policies specified in the applicable regional plan — developed by the regional council through a process of public consultation. No national environmental standards (NES) have yet been developed to regulate water use.98

The functions of regional councils include “the control of the taking, use, damming, and diversion of water, and the control of the quantity, level, and flow

  1. Trevor Daya­Winterbottom “New Zealand Sustainability Laws and Freshwater Manage­ ment” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 27 at 32. Section 21 of the Water and Soil Conservation Act 1976 [WSCA] is continued under s 354 of the RMA. This marks a departure from the common law doctrine of riparian rights which previously applied, although that doctrine is effectively continued in statutory form because the right to water for domestic use was preserved by the WSCA and RMA.
  2. See RMA, ss 30(e) and 30(fa).
  3. Section 122(1). The remainder of s 122 goes on to specify characteristics of resource consents which might be considered exceptions to this.
  4. See Fraser, above n 60; David Grinlinton “The Nature of Property Rights in Resource Consents” (2007) 7 BRMB 37.

97 RMA, ss 14(3)(b) and (e).

98 The Resource Management (Measurement and Reporting of Water Takes) Regulations 2010 apply to consents to take water at a rate of 5 litres/second or more, and require the user to install a reliable measuring device or system. The user must keep record of water taken and supply the information to the regional council for compliance purposes. The regional council may allow for weekly measurement instead of daily records.

of water in any water body”.99 Further, this specifically includes “[t]he setting of any maximum or minimum levels or flows of water” and “[t]he control of the range, or rate of change, of levels or flows of water”.100 Regional water plans can be prepared for this purpose.

Central government is able to provide guidance through the promulgation of national policy statements (NPS), and a National Policy Statement for Freshwater Management was issued in May 2011.101 The NPS requires councils to amend their regional plans in order to set limits, provide for efficient allocation, and take steps to avoid over­allocation of fresh water.102

(i) Setting minimum flows and controlling water takes

While regional plan rules have “significant coercive compliance backing under the RMA”,103 rules as to minimum flows (if any are made) may only be effective if they are backed by an activity status that makes granting further consents impossible,104 and if they are properly enforced.105

In practice and in the absence of any substantial central direction on freshwater management (until recently), councils have taken differing approaches when the resource is constrained. Some employ waiting lists for water to become free as existing consents expire, others “free up” water by tightening up existing consents when renewed.106

In the event of water shortages, councils have a means to impose take reductions (if the regional plan or consent conditions allow it).107 In doing so, they can employ methods such as proportional cutbacks, rostering arrangements between users, or providing some uses with priority.108 Some councils also employ a tiered allocation system with up to three layers of priority; the highest­

  1. Sections 30(1)(e)(i) and (ii).
  2. Sections 30(1)(e)(i)–(iii).
  3. National Policy Statement for Freshwater Management 2011, issued by notice in the Gazette on 12 May 2011 [the Freshwater NPS]. This was consistent with the LAWF report’s recommendation to pass an NPS, and following a Board of Inquiry process.
  4. While these steps are encouraging, the NPS has been criticised for not going far enough. In particular, councils have until 2030 to comply with the NPS if they consider it would be impracticable to meet a 2014 deadline, as per NPS, Policy E1.
  5. Bramley and McNeill, above n 74, at 179.
  6. RMA, s 87A(6). That is, “prohibited” activity status, which means that consent cannot be granted for the activity.
  7. Bramley and McNeill, above n 74, at 179.
  8. Nyce, above n 39, at 134.
  9. RMA, s 128(1)(b) provides for councils to review consents in line with minimum flows or standards (if any are specified in the relevant plan) where it is considered appropriate to review the consent in order to comply with such flows. However, a hearing process may be required as part of the review.
  10. Nyce, above n 39, at 134.

allocation tier has the highest security of supply and is the last to be reduced during short­term water scarcity.109

In severe water shortages, councils can temporarily suspend the exercise of resource consents through a “water shortage direction” under s 329. Finally, special “water conservation orders” made by the Governor­General on advice of the Minister of Conservation offer more long­term protection to particular water bodies, but are only available in exceptional circumstances.110

Overall, however, current management practices and tools have proved insufficient, and are unequal to the challenges of growing demand and future shortages.

(ii) Allocation of water among different types of use

Following amendments to the RMA in 2005, councils are able to provide rules in regional plans to allocate the taking and use of fresh water.111 Such rules cannot reallocate water from an existing consent holder during the term of the consent,112 although they can do so in “anticipation” of expiry.113 At this point the water can be reallocated to the same type of activity or a combination of this and other types of activities, or alternatively, to a combination of the same type and no type at all.114 There is little evidence to date of these rules being effectively used.

Rules about allocation cannot affect water for domestic needs, stock watering, or fire­fighting, because these uses are exempted from the Act’s restrictions in s 14.115

Resource consents116 are the principal means of allocating water to individual users. All resource consent applications117 are determined under s 104, which is subject to Part 2 of the Act and directs the consent authority to have regard to

  1. Ali Memon and Peter Skelton “Institutional Arrangements and Planning Practices to Allocate Freshwater Resources in New Zealand: A Way Forward” (2007) 11 NZJEL 241 at 256.
  2. See RMA, Part 9; Bramley and McNeill, above n 74, at 180–181. There are approximately 16 orders in place nationwide.

111 RMA, s 30(1)(fa)(i).

  1. Section 30(4)(a).
  2. Section 30(4)(c).
  3. Section 30(4)(d). This rather convoluted formulation may have been intended to preclude the whole of the resource being allocated to a different type of activity.
  4. Section 30(4)(f ) also provides specific exclusion in this context.
  5. Per s 87(d), a “water permit” is the type of resource consent that is needed to do something that would otherwise contravene s 14.
  6. Includes land use consents, water permits and discharge permits.

the environmental effects of the activity, relevant planning provisions,118 as well as any “other matter” the consent authority considers “relevant and reasonably necessary to determine the application”.119

(i) Priority in allocation

The RMA “says nothing specific about the priority of competing claims to take from a natural resource”.120 However, case law over the last decade has established that resource consents (including water permits) are to be considered on a “first in first served” basis.121 The current position is that the first in time to apply has a “priority of hearing”, which in the vast majority of cases will mean substantive priority to use the resource as well, unless such a presumption can be displaced by a later­in­time applicant through the public submissions and hearing process.122

The courts have also applied a principle of “non­derogation from grant”, holding that a consent authority does not have jurisdiction to grant further resource consents regarding the same resource where that would “derogate” from existing resource consents.123

Some have seen these developments as creating resource consents as a de facto property right,124 which might imply New Zealand is tending towards a more private property­based model in managing water as a common pool resource.

Finally, there is a general expectation that existing consents will be “renewed”125 on expiry, especially for larger high­value projects. Consistent with this, consent authorities are now required to have regard to the value of the investment of the existing consent holder in determining re­consenting

  1. Including regional policy statements, objectives, policies and rules in RMA plans, and any applicable NES or NPS.

119 RMA, s 104(1)(c).

120 Central Plains Water Trust v Ngai Tahu Properties Ltd [2008] NZCA 71; [2008] NZRMA 200 (CA) at [1]. 121 Various decisions have confirmed that priority accrues when a valid application is made to

the consent authority, and is not displaced by applications for further consents or additional information. See Aoraki Water Trust v Meridian Energy [2004] NZHC 820; [2005] 2 NZLR 268 (HC); Ngai Tahu, above n 120; Central Plains Water Trust v Synlait Ltd [2009] NZCA 609.

  1. See Synlait, above n 121; Kenneth Palmer “Central Plains and Synlait — A Two Theme Approach to Hearing Priorities and Sustainable Outcomes” (2010) 8 BRMB 117.
  2. See Aoraki Water Trust, above n 121; Daya­Winterbottom, above n 93, at 46. This means that over­allocation of water resources can be considered unlawful.
  3. Klaus Bosselmann and Vernon Tava “Introduction: Water in Context” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 1 at 8.
  4. Technically, an application must not be made for “renewal”, but for a new resource consent on the same terms.

applications.126 In addition, existing users are now effectively given priority over new applicants for the same resource.127

(ii) Transfer of water rights

Section 36 RMA allows for the transfer of resource consents (including water permits) between resource users. If a proposed water permit transfer is to another site, then it may only proceed if that site is within the same catchment (either upstream or downstream) or aquifer, and if the transfer is either expressly allowed by a regional plan or approved by the consent authority that granted the consent.128 If the transfer requires approval from the consent authority129 it must be considered under the Act as if it were an application for a resource consent with regard to the adverse environmental effects of allowing the transfer.130 This may require a hearing process.

The ability to transfer consents is seen as important for allocative efficiency, but has been underutilised to date. Where permit­oriented trading regimes exist (such as Waimea groundwater system in the Tasman District and Wairau system in Marlborough), only modest trading actually occurs: it was found that only 4 to 10 per cent of water would actually change hands.131

3.4 Concerns and Criticisms

The current regime has been widely criticised as inadequate to manage increasing water scarcity, particularly with regard to the first in first served priority rule and the costs associated with transferring permits.

The first in first served approach to allocation has been seen as the “most glaring problem”.132 Such an approach has obvious implications for allocative efficiency, as the water resource is allocated to the first applicant to apply,133 and not necessarily to the applicant proposing the highest­value use of the resource.

  1. RMA, s 104(2A), inserted in 2005.
  2. See ss 124A–124C. However, renewal of the existing user’s consent is now subject to criteria additional to s 104, pertaining to their history of good practice and efficiency in resource use.
  3. Section 136(2). Transfer to a different site is not possible in respect of consents to dam or divert water.
  4. That is, where it is not expressly allowed by the regional plan. 130 Section 136(4).

131 Hayward, above n 58, at 247.

132 At 230.

133 While all applicants will need to meet the criteria in RMA, s 104, it is very rare for consent applications to be turned down (although restrictive conditions are often imposed).

While “first in” allocation may be adequate under excess supply con­ ditions,134 this breaks down when full allocation has been reached, or is close to being reached, such that “first in” allocation becomes a “blunt instrument” for dealing with complex demands.135 The approach does not allow water to be (easily) reallocated for the term of the consent, and the decision­maker cannot effectively evaluate the relative merits of competing potential uses.136

Productive or technical efficiency also suffers. Because water itself is still mostly free,137 users have few incentives to adopt more efficient water uses or to limit their usage.138 Hayward argues that freshwater users have no incentive to conserve water or use less than their allocation: most are allocated far more than they use, so efficient use is not even a consideration.139

Concerns have also been raised about the long duration of most water permits (maximum 35 years), and the new RMA provisions which effectively give existing users priority of application on renewal. Brunette argues these provisions “further entrench” first in first served allocation, and may lead to “confusion between ‘allocation’ and ‘prioritisation’”.140 On the other hand, security of tenure is crucial for large players such as hydroelectricity generators to be able to invest in developments or infrastructure.141 Uncertainty as to renewal or the removal of rights tends to reduce the willingness to invest in the future, with severe consequences for dynamic efficiency (or optimal investment over time),142 and possibly also for the economy at large.143

Transferability of permits should in theory enhance both allocative and technical efficiency. It is unclear why greater use has not been made of the transfer provisions,144 but possible explanations include the insecurity of property rights to water, a lack of knowledge of transferability, attitudes about

  1. Kevin Counsell and Lewis Evans Essays on Water Allocation in New Zealand: The Way Forward (ISCR, 2005) at 19. The authors suggest that consent conditions can address efficiency of use and environmental impact.
  2. Klaus Bosselmann and Vernon Tava “Introduction: Water in Context” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 1 at 9.
  3. At 9. While Synlait leaves the door part­way open to such a comparison, the scope for this is limited and examples of it occurring effectively in practice have yet to emerge.
  4. Except for application and infrastructure costs. 138 Nyce, above n 39, at 135.
  5. Hayward, above n 58, at 230.
  6. Barry Brunette “Freshwater Management and Allocation Under the Resource Management Act 1991: Does First-in First-served Achieve Sustainable Management Principles?” (2006) 10 NZJEL 169 at 202.
  7. Foster, above n 47, at 28.
  8. Layton, above n 40, at 30.
  9. Foster, above n 47, at 28.
  10. Memon and Skelton, above n 109, at 261.

privatisation of water, and high transaction costs.145 An initial concern was that once transferred the rights could not be returned, entailing a risk of access to the resource being permanently lost.146 To address this, amendments to the Act clarified that water permits could be transferred in whole or in part and for a limited period.147 This allows temporary trading, comparable to a lease, such that the original consent holder can retain the rights for the future but have a means of temporarily reallocating any surplus water.148

Part of the problem may be a lack of demand, despite scarcity, because over-allocation artificially inflates perceived supply.149 However, there are likely to be inherent limits to the development of functioning water markets in New Zealand:150 Hayward argues that “permit trading regimes simply do not work in catchments with few users, or in any catchment that is not near maximum allocation”.151 Finally, where transfers have not been provided for in a regional plan, the transaction costs associated with obtaining council permission may be prohibitive.

There is a range of issues with the current management of fresh water from an environmental perspective. Few councils have adopted a robust approach to setting minimum flows, and insufficient attention is devoted to allocation in the interests of sustainability, except in a few catchments.152 Insufficient monitoring and enforcement are also part of the problem.153

However, even where councils are sufficiently well resourced and motivated, it is difficult to control allocation in a way that protects against cumulative effects. Freshwater systems are affected by changes in extraction, precipitation, and adjacent land use, making them complex to manage and prone to non­ linear reactions to changes in take or use. Some streams “have detrimental flow years even without human abstraction, while others can survive drying out

  1. Hayward, above n 58, at 247.

146 At 248.

  1. RMA, s 136(2A), inserted in 2005.
  2. Nyce, above n 39, at 139. Nyce notes that it would also be possible to trade in water after it is extracted, and that such transfer may not be covered by the Act’s provisions because stored water is no longer “water” for the purposes of the Act.
  3. Hayward, above n 58, at 249. Water needs to be scarce for water trading to function effectively, and greater incentives for transfer could potentially be provided by charging for the use of the water.
  4. At 58. Most notably, water is “not liquid” in the sense that it cannot be transferred between catchments.
  5. Hayward, above n 58, at 249.

152 At 229.

153 At 230.

every few years”.154 Accordingly, Hayward claims that minimum flow regimes “provide minimum protection and are arguably oversimplified”.155 Similarly, water conservation orders can be important but have very limited application such that they do not really present a solution to many of the problems of over­ allocation.156

Direction from central government has been seen as lacking,157 and the new NPS has done little to abate this concern. It has been described variously as “shorter and softer”158 than the version recommended by the Board of Inquiry, and as “watering down” the Board’s emphasis that “protection should be the driving focus of water management”.159 The LAWF itself commented that the broad narrative terms of the NPS left considerable latitude for interpretation, such that more specific guidance would be helpful.160

First in first served allocation has been criticised as the “antithesis of a sustainable and efficient use of public resources”,161 and as potentially encouraging over­exploitation of the water resource.162 As allocation (and over­ allocation) increases, so too does the frequency at which minimum flows will be reached and the duration of time which those flows will last.163

Bramley and McNeill164 argue more generally that the current regulatory methods are “remarkably ill­suited to providing any robust and long­term in­ stream protection as primacy is given to the holders of allocative rights to the use of freshwater”.165 It is difficult for non-extractive resource users and other members of the community to advocate for the protection of in­stream values through RMA processes. Challenging individual resource consents (if they are even notified for public submissions) is ineffective because most do not take enough water to create detrimental effects in and of themselves.166 The only alternative is to pursue in­stream values through the regional planning processes

154 At 230.

155 At 229.

156 At 229.

157 At 229.

  1. Klaus Bosselmann and Vernon Tava “Introduction: Water in Context” in Klaus Bosselmann and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 1 at 19.
  2. Rachel Devine and Eliza Prestidge-Oldfield “New Policy but No Rules for Freshwater Management” (2011) 9 BRMB 41 at 42.
  3. In its second report, released in April 2012. 161 Brunette, above n 140, at 204.
  4. Kenneth Palmer “Priority of Competing Resource Consent Applications: Marginalisation of the Sustainable Management Purpose” (2008) 8 BRMB 133 at 137.
  5. Hayward, above n 58, at 230.
  6. Bramley and McNeill, above n 74. 165 At 178.

166 Hayward, above n 58, at 229. This is an issue of cumulative effects, whereby the combined exercise of many water permits may be ecologically unsustainable notwithstanding the

and minimum flow requirements, which can be slow (as regional plans take on average eight years to become operative), and costly.167 Once in place, regional plans are almost equally difficult to amend, and may be already out of date by the time they become operative.

A number of characteristics of the regime could be seen as inequitable or contrary to environmental justice. As noted above, poor procedural protection of in­stream values means that in­stream rights are weak and perceived as such, and have few if any of the rights that attach to (private) property.168 Recreation and community interests are either sidelined or under­resourced to compete with commercial interests through the hearings process. Where recreational values are eroded over time through a series of non-notified consents there may be no means of participation at all.

Some also question whether it is appropriate for fresh water as a public resource to be appropriated for private gain at no cost.169 Where clean­up is required this is likely to be funded by the public through regional councils.

Finally, the unsustainable management of any natural resource is also inequitable with respect to future generations.


Revision of New Zealand’s water management regime has been contemplated for some time, and a number of approaches have been advocated in the literature.170 For example, Bramley and McNeill advocate a system of deemed resource consents for in­stream use, which they see as offering more robust protection than the minimum flows approach.171 Bosselmann and Tava discuss and advocate collaborative governance as an emergent approach in order to overcome the “inflexibilities and lack of appreciation of scale inherent in command­and­control regulatory approaches”.172

fact that they are considered acceptable individually. While the RMA does provide for consideration of cumulative effects in s 3, this is always a difficult exercise.

  1. Bramley and McNeill, above n 74, at 182.
  2. Bramley and McNeill, above n 74, at 178.
  3. Hayward, above n 58, at 253.
  4. It is beyond the scope of this article to consider all of these in detail, but some are noted below.
  5. Bramley and McNeill, above n 74.
  6. Klaus Bosselmann and Vernon Tava “Introduction: Water in Context” in Klaus Bosselmann

Volumetric water pricing has been discussed as a means to ensure that the value of scarce resources is reflected in their use; increasing cost (at the margin) may increase incentives for technical efficiency in the use of water.173

Systems of tradable quota rights modelled on the New Zealand fisheries regime have also been put forward. Under such systems users are allocated a percentage share of the resource, and this corresponds to a portion of the “total allowable take”, to be reviewed periodically in line with changing environ­ mental conditions.174 Along similar lines, the New Zealand Business Council for Sustainable Development (NZBCSD) released a report in 2008 advocating a “Best Use Solution”,175 which would allow “the community to decide non­ commercial allocations combined with tradability of commercial entitlements to enable moves to higher value users”.176

Various Government reviews of the RMA regime have been conducted. Most recently in 2009, the current National­led Government initiated a programme called a “New Start for Fresh Water”. This programme, the work to date and likely future directions are discussed below.

4.1 Government Response: “New Start for Fresh Water”

The current Government programme was spurred by approaching resource limits, as seen in “deteriorating water quality, water demand outstripping supply, and constrained economic opportunities”.177 It marks a broadening of focus from environmental and sustainability concerns, to also consider allocative efficiency and the management of water as an economic resource. The Government’s 2008 introductory Cabinet paper notes that “[s]ound water management is not solely an environmental issue, but is also essential to the pursuit of sustainable economic development”.178 The goal of water management was described in the following way:179

The aim is to get the “best value” for society from New Zealand’s water resources, now and for the future. The concept of “best value” needs to be

and Vernon Tava (eds) Water Rights and Sustainability (New Zealand Centre for Environmental Law, Auckland, 2011) 1 at 13.

  1. See generally Hayward, above n 58; Memon and Skelton, above n 109, at 270. 174 Hayward, above n 58; Memon and Skelton, above n 109.
  2. NZBCSD, above n 71.
  3. Peter Neilson “Tradeable Rights for Commercial Water: With the Best Use Solutions Model” (Seminar paper, 2010) Resource Management Law Association < nz> at 3.
  4. Ministry for the Environment “Freshwater reform: Fresh Start for Fresh Water” (2011)


  1. Cabinet Office Circular, above n 54, at [3].

179 At [20].

determined by looking across economic, environmental, social and cultural dimensions, and by weighing up individual, local and national interests.

The Cabinet paper also signals a move “away from a first-in first-served system that focuses primarily on environmental effects rather than most valued uses”.180 It anticipates a “two-stage” model of first providing for public values through a largely planning­based process, and then using “other tools (which may include economic instruments) to provide for the allocation and transferability of the available water to its most valued uses”.181

As a key part of the review programme, a “Land and Water Forum” (LAWF) was established, composed of a diverse range of stakeholders and interested parties with respect to freshwater resources.182 The LAWF presented an initial report in September 2010 entitled A Fresh Start for Freshwater,183 and a further report was released in April 2012 focusing on the means of setting limits.184 A final report, on managing within limits (including through allocation mechanisms, and referred to as “Tranche 3”185) is expected in September 2012.186

The Fresh Start for Freshwater report emphasises many of the problems with the current regime that have been raised by other commentators (and discussed above), and also provides some future direction. The central, and most fundamental, difficulty identified was around the failure to set or manage limits.187 The LAWF recognised the need to set limits to avoid over­allocation, both for extractive purposes (water quantity) and in terms of the water’s assimilative capacity (water quality).188 The report acknowledges that setting limits is not easy because it will always be difficult “to get agreements about

  1. Cabinet Office Circular, above n 54, at [39].
  2. At [38]. This is broadly in line with the earlier NZBCSD proposal.
  3. LAWF, above n 42, at v. The LAWF has 58 participating organisations, and intended to bring farmers, environmentalists, industry and iwi together in order to find common ground. The report itself was prepared by a Small Group consisting of 21 major stakeholders.
  4. LAWF, above n 42.
  5. Land and Water Forum Second Report of the Land and Water Forum: Setting Limits for Water Quality and Quantity, Freshwater Policy and Plan-Making Through Collaboration (Land and Water Forum, 2012).
  6. Cabinet Office Circular “Fresh Start for Fresh Water: High Level Government Response to the Land and Water Forum Report” (August 2011).
  7. Ministry for the Environment, above n 177.
  8. Peripheral issues discussed related to governance structures, rural water infrastructure, research and development, and water services management.
  9. See LAWF, above n 42, at 18.

what limits should be, how quickly they should be achieved and who should bear the cost”.189

The LAWF emphasised the economic (as well as ecological) consequences of the failure to set limits, such as “inhibited development of more flexible means of allowing water permits to be allocated amongst users”.190 It saw first in first served allocation as part of the problem.191

In terms of solutions, the LAWF considered that better allocation and transfer could help to manage demand, reduce contamination and maximise the value of water for the economy. The first element of any allocation process would be to establish how much water was available to be allocated for productive use, and determining “how much water should be reserved for ecological, environmental and recreational purposes (in-stream flows)” was considered part of the wider process of setting limits and targets.192 The report notes that it will be helpful to develop a set of guiding principles including “efficiency of use, even­handedness as between users and consistency of practice across regions”.193

Finally, the report emphasised that once allocated, water rights should be able to be transferred more easily:194

That could allow water to move to its “best use” over time, allow communities to transfer water more easily between their members, provide a quicker means of access to water for those who do not currently hold consents, and allow water to be reallocated without creating winners and losers.

The second report provides further detail with regard to these broader themes, focusing on setting limits for water quality and quantity, and also on plan­ making through collaborative processes.

The LAWF made quite a number of recommendations,195 including in relation to setting limits for quantity and quality, achieving targets, and improving allocation.

  1. LAWF, above n 42, at viii. 190 At viii.
  2. At viii. Other factors identified in the report were a lack of central direction and proper regional planning, lack of integration in water management, insufficient investment in scientific research, and sub-optimal stakeholder engagement.
  3. At xi.
  4. At xi.
  5. At xii.
  6. For a full list, see LAWF, above n 42, at 1. Recommendations not discussed here pertain

(i) Setting limits

In terms of setting limits, the LAWF recommended central government set overall objectives (including timeframes for these to be achieved) through NPS and NES. Regional councils could then give effect to these at a catchment level, expressing measurable environmental states and engaging with communities, iwi and water users to set specific targets. Monitoring and reporting processes were also considered important.196

The second report contemplates numerical and narrative objectives being set for water quality and quantity through objectives in regional plans (in line with “a national instrument”), and given effect through plan rules.197 Objectives could be set by water body or catchment type. Water bodies could be classified as “Fair”, “Good”, or “Excellent”, with associated “bands” of protection.198 The second report recommends that once a limit is fully allocated, further use (extraction or discharge) would be a prohibited activity.199

Interestingly, the second report also suggests that objectives and rules in regional plans could be set through a collaborative stakeholder process, rather than the usual Schedule 1 RMA process.200 This could involve a group of around twenty interested parties, to be chosen by the regional council (but with scope for objections and reconsideration).201 The report envisages plan provisions then being produced by consensus, but with the regional council able to draft provisions for areas where consensus could not be reached.202

Following comments on a draft decision, appeal rights would be limited to questions of law, except in circumstances where the decision “does not give effect to the consensus position of the collaborative stakeholder group; or will have material implications for a matter or matters of national significance”.203

(ii) Achieving targets

With regard to achieving targets, the LAWF recommended that regional councils employ a range of instruments, including “voluntary schemes, codes of good management practice (including audited self­management), regulation,

to rural water infrastructure, changes to governance, drainage, water services management, and science and development.

  1. At 1.
  2. LAWF, above n 184, at 13 (Recommendation 2).

198 At 15–16.

  1. At 26–27 (Recommendation 13). This could also be the case where interim limits are set, tied to existing use levels.
  2. At 32. Regional councils would be able to choose which process to follow. 201 At 38 (Recommendation 28).

202 At 33.

203 At 34–35.

and funding”.204 It noted the importance of “good management practice”205 being encouraged by regulators, industry and others “as an essential tool for improving and maintaining water quality, quantity, and water use efficiency”.206 Further recommendations on achieving limits and managing water use within limits will be the focus of the Tranche 3 report, due in September 2012.207

(iii) Improving allocation

In terms of allocation, the LAWF considered that first in first served “does not work in an increasing number of catchments where water is fully allocated or approaching full allocation”.208 Accordingly, regional councils should set a threshold for each catchment and move to a more efficient allocation system when the amount of water allocated nears that threshold. The LAWF recommended the Government consider three options for efficiently allocating scarce water once in-stream limits had been set. These were: firstly, to continue with existing consents but impose efficiency­based conditions on expiry; secondly, to use a different administrative system based on efficiency criteria and community considerations; and thirdly, the use of payment, including through the tendering, auction or regular re­tendering of permits.

The chosen method would be accompanied by a more flexible system for transfer, but “only once over­allocation of water has been managed”.209 The LAWF explains that setting limits and managing over­allocation are “necessary prerequisites for more flexible transfer as there is a need to ensure that greater flexibility does not result in over-allocated water being used”.210 It would be up to regional councils to develop plans to manage any over­allocated catchment in their region. Presumably the means of allocation will also be addressed in the Tranche 3 report.

(iv) Facilitating transfer

The LAWF also recommended the Government consider a number of options to better facilitate the transfer of water permits. These were: permits being transferred without charge among members of the same community; permits being freely traded without payment for the permits; permits being freely traded but only after payment for the permits; sub­divisibility of permits; and requiring regional councils to define the areas and conditions within which transfers could

  1. LAWF, above n 42, at 1.
  2. At 63. Defined as “an umbrella term to describe industry-led programmes promoting practice changes to improve industry performance against water related objectives”.
  3. At 1.
  4. LAWF, above n 184, at 4.
  5. At 2.
  6. At 3.

210 At 37.

freely take place (that is, without requiring individual consideration of their site-specific impacts).211

The LAWF envisaged this process being overseen by a non­statutory National Land and Water Commission (to be established on a co­governance basis with iwi).212

Following the first LAWF report being issued, the Government gazetted the NPS for Freshwater Management in May 2011, and has established a clean­ up fund to assist councils and a fund for irrigation.213 The new NPS requires regional councils to set both water quality limits and minimum flows.214

The Government issued a “high level response” to the LAWF report in August 2011,215 broadly agreeing with its recommendations. It did not express any preference in terms of the various options floated for allocation and transfer, but noted that these would be “further explored with iwi, the LAWF, the local government sector and other stakeholders as part of Tranche 3 of the work programme”.216


As can be seen from the above discussion, there are a number of reform possibilities available in order to better avoid a “tragedy of the commons” and encourage the more efficient use of fresh water. The traditional approach of statutory methods to allocate water rights has been criticised by economists concerned about efficient allocation, who tend to favour market mechanisms with explicit valuation by users.217 But equally, others are concerned that a shift to a market­based approach would lead to inequitable and ecologically unsustainable outcomes.

  1. At 37. The LAWF explains that regional councils would define, through their regional plans, “those areas and/or specified conditions within which transfers could take place without any need for an approval process for their site-specific effects”. It also emphasises a “separation of permits to take water from responsibilities for site-specific effects”, as well as enabling sub­divisibility of permits, “for example, partial or temporary transfers”.
  2. At 4.
  3. Cabinet Office Circular, above n 185, at 12. 214 Freshwater NPS, Policies A1 and B1.
    1. Cabinet Office Circular, above n 185, at 13.
    2. At 14 (Tranche 3 is due November 2012).
    3. Bramley and McNeill, above n 74, at 175.

Accordingly, in redesigning the water management framework it is necessary to reconcile all three values. Ideally, this exercise should accom­ modate all values as much as possible, rather than simply reaching a split­the­ difference compromise or adopting half measures. In this regard, Memon and Skelton emphasise that:218

[S]trategic planning and use of market­based instruments to allocate water resources are not necessarily mutually exclusive approaches, as two ends of a spectrum. To the contrary, deployment of market­based instruments has to be embedded within a broader strategy for water resource allocation in order for the markets to deliver desired social outcomes.

With that in mind, this section will consider some general design principles for accommodating each of the “three Es”, the likely direction of freshwater reform in New Zealand, and the issues yet to be resolved.

5.1 General Principles

There is broad agreement on the regime conditions that are conducive to economic efficiency. Bramley and McNeill refer to the “generally accepted economic position” that:219

[E]fficient property rights are specified in terms of: universality, where all resources are privately owned and entitlements are completely specified; exclusivity so that all benefits and costs only accrue to [the] owner; transferability so that all property rights are transferable from one owner to another in a voluntary exchange; and enforceability so that property rights are secure from involuntary seizure or encroachment by others.

Layton adds that clarity of what is being traded is essential,220 and that in general “the fewer the restrictions on trading the better; the wider the pool of potential participants the better; and the more readily enforceable are rights the better”.221 In particular, ready transferability is seen as having a number of clear

benefits associated with allocative efficiency. These include allowing individuals to improve their security of supply by facilitating access for users through trade, and providing incentives for more efficient use of allocated

  1. Memon and Skelton, above n 109, at 270.
  2. Bramley and McNeill, above n 74, at 175 (emphasis added). 220 Layton, above n 40, at 28.

221 At 29.

water.222 Similarly, certainty and security of supply are regarded as important for dynamic efficiency by encouraging optimal investment over time.223

There is likely to be some tension between the conditions listed above and the outcomes that others might consider equitable. Foster224 argues that (contrary to conventional wisdom) equity of allocation can and must be taken into account in making water allocations.225 Another dimension is the concern that an economics­driven approach would compromise inter­generational equity, given that unrestricted markets tend to focus on short­term gains and may discount the needs of future generations.226

Memon and Skelton recognise the need to manage fresh water as an economic resource, but note that from a social equity and environmental justice perspective it could be argued that access to water should be treated as a basic human right or a social good to meet basic needs and to secure the protection of ecological integrity.227 In particular, New Zealanders have a long­standing belief that access to water should be free, and tend to be concerned about its privatisation.228 This suggests that water for domestic and stock purposes should perhaps be left out of any market schemes on the basis of equity considerations and cultural expectations.229

In designing a new regime, environmental considerations should ideally be seen not as opposed to efficiency (economic) or equity (social) considerations, but as setting the parameters within which these considerations can operate.230 If appropriate environmental limits or “bottom lines” for resource use can be set, observed and enforced, then arguably the remaining trade­offs will occur primarily between the social and economic sectors (or “pillars”).231

  1. Memon and Skelton, above n 109, at 261.
  2. Layton, above n 40, at 30.
  3. Foster, above n 47.
  4. At 27, 30. In part this is based on the inclusion of “social, economic, and cultural well­ being” within s 5.
  5. Nyce, above n 39, at 138.
  6. Memon and Skelton, above n 109, at 242.
  7. Nyce, above n 39, at 137.
  8. Consistent with their currently being exempted under RMA, s 14.
  9. That is, if adopting an approach informed by the “strong sustainability” or “fundament and two pillars” models of sustainable development.
  10. Or between economic efficiency and equity, to the extent that there is any tension between the two.

Anker232 suggests that there are a number of important elements in an integrated water resource management regime. These are, firstly, that the determination of environmental bottom lines reflects the broad range of water quality233 parameters, such as ecosystem health, contaminants, and cultural and spiritual values. A second element is adequate measures to control activities based on effects on the receiving environment “including consideration of cumulative and synergistic effects”. Finally, Anker advocates a river basin, watershed or catchment approach that links the first two elements and “provides for cross­media and cross­agency integration and public participation”.234

However, Nyce cautions against overreliance on minimum flows, as even where adequate information exists for decision­making, the entire practice of setting environmental bottom lines to protect environmental and in­stream values has been criticised as a “simplistic representation of reality”.235 Nyce argues that it is “almost impossible” to determine a single “safe” level, such that the process becomes a socio­political decision requiring a judgement call between different demands on water.236

This suggests that the precautionary principle should be taken into account when setting such limits, and management systems should retain the ability to increase minimum flows (and thus scale­back allocations) if that later becomes necessary.237 Further, there is a need for robust and ongoing scientific monitoring and modelling, and for a sophisticated system of limits to be set

— perhaps incorporating parameters such as the duration of minimum flow as well as simple minimum and maximum flow measures. Finally, there may even be scope for an “adaptive management” approach whereby the minimum flow could only be ratcheted down if no ill effects were detected at each stage.

Overall, it has been suggested that an optimal regime for managing fresh water would avoid declining freshwater reliability, facilitate preferential allocation to most valued uses, be able to adjust limits in changing circum­ stances, and yet also provide a degree of assurance to consumptive users.238

5.2 The Likely Reform Package

The final form of the new regime is not yet clear. However, the most funda- mental elements have been apparent since the beginning of the “New Start”

  1. Helle Tegner Anker “The Resource Management Act and Protection of Water Quality: A Comparison with European Initiatives” (2003) 7 NZJEL 1.
  2. Anker’s focus here was on water quality, but similar considerations apply when determining minimum flows.
  3. Anker, above n 232, at 28.
  4. See also Hayward, above n 58; Nyce, above n 39, at 145.
  5. Nyce, above n 39, at 145.

237 At 145–146.

238 Daya­Winterbottom, above n 93, at 42.

programme: a greater emphasis on setting limits, efficient allocation, and transferability of permits.

Setting bottom lines in advance, with a view to environmental protection, and then sticking to them, is preferable to making a series of trade­offs between environmental protection and economic or social benefits on a case-by-case basis. This is because even rational trade­offs or comparisons of environmental costs with economic benefits may ultimately lead to unsustainable outcomes as a result of cumulative effects within systems and over time.

A significant challenge for the “New Start” programme will be whether limits can be set conservatively enough to account for scientific uncertainty,239 the complexity of natural systems, cumulative effects from other activities, unallocated water takes (such as those for domestic needs or stock under s 14 RMA), and the potential for reduced or more variable rainfall in future due to climate change.240 In this regard it is encouraging that the LAWF specifically recommends that decision­makers be directed to consider information uncertainty in setting limits, and apply precaution where there is potential for irreversible environmental impact.241

As noted above, the process of setting limits should ideally be robust and science­based, rather than the socio­political decision Nyce refers to. This does not necessarily require that no ecosystem change occur, as some change due to human activity is inevitable and tolerable. However, there is a need to distinguish between a minor change in the equilibrium characteristics of eco­ systems242 on the one hand, and a situation where ecosystem characteristics (and associated societal values) continue to steadily deteriorate over time. The first situation can be considered “sustainable”; the second by definition is not.

Any temptation to determine the “economically optimal level of ecosystem degradation” should also be resisted, for a number of reasons. These include the uncertainty inherent in such decision-making, the difficulty in placing a value on nature243 (including in terms of ecosystem services and intrinsic value), and the inequity to future generations of discounting future environmental harm.

  1. Hayward, above n 58. Including about the extent to which setting such limits is even a workable approach: see Nyce, above n 39, at 144.
  2. NZBCSD, above n 71, at 11.
  3. LAWF, above n 184, at 23 (Recommendation 11). It is perhaps concerning that no such direction is contained within the current NPS.
  4. See Pardy, above n 7.
  5. Nyce, above n 39, at 155. Nyce notes that some water uses are “reflected poorly in market transactions, particularly intangible factors such as aesthetic, cultural, recreational and wildlife elements”.

It may also be preferable to have limits set at the local level (in line with national guidelines) rather than adopting a national one-size-fits-all approach. Ostrom244 notes that it is “better to induce cooperation with institutional arrangements fitted to local ecosystems rather than to try to command it from afar”.245

In terms of managing the transition to a new regime, timing will be a critical factor. The LAWF notes the potential for a “gold rush” immediately before limits are implemented, and considers interim limits, moratoria, and default limits as potential means to address this.246

Secondly, it is crucial to ensure that adequate limits are in place in advance of the greater utilisation of permits that is likely to flow from greater transferability. This is an important point acknowledged by the LAWF.247 Memon and Skelton note that if transferability is to be increased, it is important that institutional arrangements appropriately manage potential environmental impacts, given that with enhanced transferability the activation of “sleeper permits” may lead to a higher level of abstraction than has occurred in the past.248 It would also be necessary to provide protection for third parties (such as downstream users) especially where, as a result of trade, a given gross abstraction involves a significantly different return flow.249 The current level of unused allocation can be seen as a kind of environmental “buffer” sitting above what councils intend to allocate. The removal of this buffer due to more efficient allocation and transfer is another reason for limits to be set conservatively.

The emphasis in the LAWF reports on multiple approaches to achieving targets is to be commended. While voluntary or non­regulatory approaches are sometimes criticised as weak or ineffective, they can be helpful when properly linked to other systems (that is, as complements rather than alternatives to the overall limits being set through regulation). In discussing the best means of

  1. Ostrom, above n 56.

245 At 15.

  1. LAWF, above n 184, at 53.
  2. LAWF, above n 42, at 37. See also Nyce, above n 39, at 146.
  3. Memon and Skelton, above n 109, at 264.

249 At 264.

managing common pool resources, Dietz and others250 note that successful governance frameworks tend to be:251

complex, redundant, and nested in many layers ... simple strategies that rely exclusively on imposed markets or one­level, centralised command and control and that eliminate apparent redundancies in the name of efficiency have been tried and have failed.

Related to this is a need to ensure that enforcement mechanisms (formal or otherwise) are seen as “effective and legitimate by resource users or resistance and evasion will overwhelm the common governance strategy”.252 Collaborative governance and meaningful stakeholder involvement are likely to increase the perceived legitimacy of the controls or regulations in question. In the particular New Zealand context, meaningful involvement of iwi and due regard to cultural factors is also important in terms of legitimacy and equity.253

In this regard, it is encouraging that the second LAWF report sees a place for collaborative decision­making in developing plans on fresh water. It may, however, be overly optimistic to expect a truly representative group of stakeholders, with varying foci in terms of the “3 Es”, to reach “consensus”. While some degree of consensus may be possible with regard to objectives for various water bodies, it is difficult to see this translating into consensus as to the precise limits in rules. In any case, it is perhaps more appropriate that specific limits are determined on the basis of scientific evidence (and with a view to “environmental effectiveness”) once the objectives have been set for the water body in question.

In implementing such collaborative measures, equity and natural justice concerns may arise in regard to the selection of group members, and the restriction on merits­based appeals or otherwise dispense with normal RMA processes.254 As such, these suggestions will need to be considered with care.

5.3 Future Design Choices

Within this general framework, indicative direction is still to come in several crucial areas. Principally, these relate to how water rights are defined, how they are allocated and how they are transferred among users.

250 Dietz and others, above n 63. 251 At 1910.

252 At 1909.

  1. Treaty claims as to water ownership could significantly elevate this role in the future.
  2. LAWF, above n 184, at 47–50. For example, the second LAWF report calls for more “agile” planning in some cases (like changing limits) without using the usual Schedule 1 plan change process.

Defining tradable water rights will require a balance to be struck between the environmental interest in flexible permits that can be adjusted as required, and the economic efficiency interest in having property rights as clear and certain as possible in order to facilitate trading.255

Fraser argues that in times of increasing pressure, “recognizing that the permission to use a resource granted under a consent is subject to modification to accommodate other users would seem appropriate”.256 Similarly, from an environmental perspective, Hayward argues that councils need to retain the ability to review and modify consents (if needed), if they are to successfully carry out their obligations under the RMA — a more “pure” property right would prevent this.257

On the other hand, too many obstacles will impede efficient market operation.258 Layton emphasises that clarity about what is being traded is important for the enforcement of transactions and hence for the willingness of parties to participate in trading.259 However, he notes that absolute certainty about rights and obligations and buyers and sellers is not essential for an effective market “provided the parties have sufficient information to be able to assess the likely outcomes if various contingencies arise and to factor the risks into their assessments of value”.260 Layton observes that this is “very instructive for tradability of water rights. The chances that total allowable water takes may have to be adjusted in future as knowledge about the environment and the size of aquifers is refined seem very high.”261

In addition, an inflexible permit system would (or should) mean having to set allocation levels conservatively in order to accommodate shortages. That would be inefficient in times of excess supply, because the additional potentially available water would be “wasted”.

A related matter is the separation of permits for the take and use of water, which already occurs to some extent under the present regime. From an allocative efficiency standpoint, it makes sense to separate out “take” and “use” permits, in order to facilitate trade. Greater transaction and compliance costs associated with joint take and use permits are seen as an impediment to the

  1. Nyce, above n 39, at 144.
  2. Fraser, above n 60, at 189.
  3. Hayward, above n 58, at 246.
  4. Nyce, above n 39, at 144.
  5. Layton, above n 40, at 28.
  6. At 28. Layton notes that the scaling of fish quota in the event of a change in total allowable catch does not stop trade in fishing quota.
  7. At 28–29. However, it would be “helpful to tradability if the research base and criteria upon which such [a] decision would be based are set out in advance, together with how any alteration in the allowable water takes impacts on different categories of water permits”.

free transfer of permits.262 The proposed separate “water access entitlement” system proposed by the NZBCSD263 could potentially allow the cumulative effects of water take throughout a catchment to be managed separately from the localised effects of the immediate take (which would still be governed by resource consents as they are now).264

Another difficult question is how initial allocations of water rights should be made, and the successor to “first in first served” is not yet clear. Options noted by the LAWF included continuing existing consents, moving to a different administrative system (based on criteria such as efficiency and community considerations), or allocating through payment by tendering, auction, or regular re­tendering of permits.265 The first was seen as protecting investment and expectations of continued access, and might also be seen as more equitable to existing users. The second two methods might more rapidly increase efficiency, but at the cost of reduced certainty for existing consent holders.266

Layton267 observes that (in theory) it does not matter from an allocative efficiency or tradability perspective whether rights are obtained gratis or paid for by the holder. This is because “if it is freely tradable every holder faces its highest­value use when deciding whether to use or trade it, or leave it idle”.268 As a result, the opportunity cost of using or leaving a resource idle is its value in its highest use by another party, rather than the price originally paid.269 Layton also suggests that which users the resource is initially allocated to has no long­ term bearing on efficiency of allocation, as long as there is ready tradability.270 However, there is a need to be wary of designing the new regime around

such assumptions of economic theory. Water markets would not function

  1. NZBCSD, above n 71, at 15.
  2. At 20. Under the NZBCSD proposal, a “Water Access Entitlement” (WEC) would be a secure property right available for a 35­year­term, representing a proportional rather than absolute share of the freshwater to be made available for taking through an “Integrated Catchment Management Plan” (ICMP).
  3. It is perhaps unlikely that administration of these elements could ever be separated entirely, given that the effects of a water take (including on downstream users and ecosystems) will inevitably be dependent on where in the catchment it occurs. Thus, the need for conditions on transfers and oversight of the patterns of use will be unavoidable.
  4. LAWF, above n 42, at 36.
  5. At 36. LAWF notes that allocation through payment might also lead to price volatility. 267 Layton, above n 40.

268 At 29.

269 At 29.

270 Layton, above n 40, at 29. Layton says this is the case “provided the resource is tradable and transaction costs are negligible and no party has market power in relation to the resource”.

properly in the face of a shortage of users or an excess of supply, and would at best be limited by the size of the relevant catchment.271 At least some of the time, it would be impossible to avoid the transaction costs associated with council oversight.272 Further, Neilson273 notes that “fresh water in a river, unlike in a bottle on the shelf, is not a commodity as its value is significantly impacted by its location and quality. We are not indifferent as to where we access our fresh water.”274

In any event, Layton notes two important respects in which initial allocation definitely does matter, even under ideal market conditions. These are, firstly, that the initial allocation affects the distribution of wealth or benefits (a matter tied up with equity), and also that any allocation that resembles the expropriation of wealth or property (or, perhaps, expected de facto property) can have very serious adverse effects “on the willingness of parties to invest and hence on dynamic efficiency”.275 Layton considers this significant given that dynamic efficiency is considered the most important for “economic growth and improving economic welfare in the long run”.276

Other questions to be resolved will be the extent to which rights should be prioritised among different types of uses, whether renewable electricity generation should be prioritised,277 and whether grand­parenting of permits is appropriate.278 Another issue will be the need to “claw back” some allocations in catchments that are already over­allocated, and who should bear the burden of this. The LAWF has acknowledged that the transition will require careful thought, in light of such issues.279

Finally, further consideration should be given to whether volumetric water charging is appropriate. Memon and Skelton advocate this as a means to provide a return to the community from the private use of a public resource, and to incentivise greater efficiency of use.280

  1. See Hayward, above n 58, at 259.
  2. It is likely that even if some transfers within pre-defined conditions could be made on a permitted activity basis as contemplated by NZBCSD, others would need permission to be granted. See above n 264.
  3. Neilson, above n 176.
  4. At 3.
  5. Layton, above n 40, at 30.

276 At 29.

  1. LAWF, above n 42, at 36.
  2. See Layton, above n 40, at 30–31. 279 LAWF, above n 42, at xii.

280 Memon and Skelton, above n 109, at 270. See also Hayward, above n 58. Any potential unintended effects on the operation of the market for water permits would need to be considered as part of this investigation.

In providing for greater transferability of water rights, it will be necessary to consider whether any restrictions are appropriate. The NZBCSD model contemplates water being allocated into four primary “pools”, being “aquatic ecosystem sustainability”, permitted activities such as stock drinking water, in­stream public use, and a “consented use pool” (CUP).281 Trading of permits would occur only within the CUP (extractive uses) so that, for example, there would be no ability to trade between public uses such as recreation and the CUP. Layton criticises this feature as an impediment to allocative efficiency, on the basis that “a broader market composed of more diverse interests tends to reduce search costs and increase the number of transactions”.282 Thus, he argues, there is a need to recognise that there will be “occasions when water would yield higher benefits if used for recreation than the CUP purpose to which it is put, and vice versa”.283

This argument is troubling for a number of reasons, including issues as to who would have the right to trade public recreational in­stream use, and the extent to which in­stream public use can sensibly be separated from aquatic ecosystem sustainability. Further, there is the risk that once public uses are traded away, the rights become too expensive to buy back.

More generally, it is suggested that if trading is permitted broadly across all uses, then the notion of “highest­value use” for society may become little more than the “wealthiest use” to private individuals. The monetary interest in private commercial use is simply not comparable with the wider public non­market value in keeping water in­stream, which is effectively a “public good” for which there is no (or limited) financial return. As such, it is inappropriate to pit such different values against one another on an open market. Even with respect to trade among different types of extractive use, councils will be mindful of a “‘loss’ of water available for irrigation to other ‘more wealthy’ interests”.284

Accordingly, it may be more equitable (and in society’s best interests) to limit markets to different kinds of extractive uses (like “industrial use” or “irrigation”), such that water could be allocated through transfer to the “highest­ value” (or most technically efficient) users within each particular field.285 This is consistent with the existing ability for councils to allocate water to different types of use.

  1. NZBCSD, above n 71, at 19. The CUP itself would be comprised of municipal water supply, energy production, and other uses such as irrigation and fish farming.
  2. Layton, above n 40, at 31.

283 At 31.

  1. Memon and Skelton, above n 109, at 264.
  2. This decision might need to be made on a catchment basis, so that local conditions (including market conditions) could be taken into account.


As recognised by both Government and the LAWF, developing solutions to the problems facing fresh water will take time. The issues will need to be worked through with stakeholders, including farmers, industry, environmental and recreational interest groups, and iwi.

The key difficulties stem from the inherent characteristics of fresh water as a common pool resource, and from the wide-ranging and sometimes conflicting values attached to it — which may be tangible or intangible, extractive or in­stream. These include ecological (including ecosystem services), social, recreational, aesthetic, cultural, intrinsic, and economic values.

All such values are currently threatened by declining water quality (including as a result of diffuse discharge and agricultural run­off ) and low water levels, partly due to an inefficient management regime which tends to allocate more water than what is available. Insufficient monitoring, enforcement, and investment in freshwater management also present difficulties, and broad improvements are required to governance in this area. This article has touched on only some of the issues.

In approaching the task of freshwater reform as a challenge for sustainable development, it has been argued that it is appropriate and helpful to examine the current system and proposed changes through the lens of the “three Es”. This provides a means to assess the value delivered across all three of the sectors of the sustainable development model(s).

The current “New Start” reform programme shows considerable promise, and represents a sensible approach to reconciling the different values in fresh water, including in terms of the “three Es”. The programme’s new focus on efficient allocation need not detract from environmental interests, provided that limits can be set and achieved as a necessary first step.

Following this, public processes informed by market forces can be used to efficiently allocate and transfer the amount of water that can responsibly be extracted. In doing this, it is important that fresh water is allocated and used in an equitable way, and that smaller players are not sidelined or inequitably priced out of the market.

This article has emphasised the need to first set scientific and responsible resource limits, backed up by a precautionary principle, consistent with a “strong sustainability” approach. It is recognised that this will be particularly challenging in light of the importance of primary production to New Zealand’s economy, the economic interest in intensifying agricultural production (particularly dairy), and the pressure that this will put on freshwater systems. Even if a “weak sustainability” model were ultimately adopted, the “three Es” remain a valuable tool in assessing the implications for each of the social, environmental and economic sectors.

However, for a fundamental natural resource as important to human exist­ ence and wellbeing as fresh water, it is suggested that the “fundament and two pillars” model is most instructive. Water is the “fundament” without which the two pillars of society and economy would topple over. Extractive economic use cannot be maintained without adequate supply (quantity), in­stream economic benefits (such as tourism) disappear without water quality, and society suffers if either quality or quantity are significantly depleted.

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