Home | Databases | WorldLII | Search | Feedback New Zealand Journal of Environmental Law

Christensen, Mark --- "Valuation of natural assets under the Resource Management Act" [2013] NZJlEnvLaw 9; (2013) 17 NZJEL 291

Last Updated: 21 January 2023

291

Valuation of Natural Assets under the Resource Management Act

Mark Christensen*

There is increasing interest in the valuation of natural assets and ecosystem services, both internationally and within New Zealand. Under the Resource Management Act 1991 (RMA), economic con- siderations are an integral component of sustainable management. Economic efficiency is to be considered by decision-makers both for resource consent applications and for plan provisions. However, the courts to date have generally expressed considerable reservations about the usefulness of economic valuations of effects on natural assets or ecosystem services. It is important to distinguish between valuing natural assets and “putting a price” on those assets. Not all values can be monetised. The court decisions are to the effect that an economic analysis is only one component of the overall assessment which is to be made under the RMA. A holistic approach is to be preferred, so that while an economic analysis can be helpful, the RMA requires a wider exercise of judgement. As currently interpreted, the RMA does not require a quantitative and explicit cost-benefit analysis of effects on natural assets to be undertaken, although the implications of the recently amended s 32 remain to be seen. Given the increasing prominence of the concept of valuation of natural assets and ecosystem services, the ongoing debate is likely to be played out in the context of the RMA. Given that scenario, if certain contentious issues around models and methodologies for valuation of natural assets and ecosystem services can be resolved within the context of a national

*Partner Owner, Anderson Lloyd, Lawyers, Christchurch, New Zealand; email: mark. christensen@andersonlloyd.co.nz. Earlier versions of this article were published in the Resource Management Journal [RMJ], August 2013 and as part of the proceedings of the Environmental Law Update, LexisNexis, 16 October 2013.

policy around such issues, the outcome may well be more robust and defensible decision-making to promote the sustainable management of New Zealand’s natural and physical resources.

1. INTRODUCTION

In May 2013 the New Zealand Institute of Economic Research (NZIER) released a public discussion document titled Valuing natural assets. The paper noted that New Zealand producers and consumers get much value from natural assets, much of which is intangible. This was seen as a fundamental reason to make “special effort to measure the value of natural assets, to make sure we make the right decisions about their use and conservation”.¹

The paper states that a key barrier to using economic valuation is the cost and uncertainty of values obtained from the variety of techniques being used: “This is a real issue, to the extent that doubts are being expressed in resource management cases whether economics has much to add when considering environmental effects.”²

The thesis of the NZIER discussion paper is that to “remove this barrier”,³ evaluations need to be cheaper and easier to compare and that a standardised technique could provide relative values for different types of natural asset or service. This would make economic value estimates from across a range of natural asset settings more consistent.

The NZIER paper notes that while economic valuation is not straight­ forward, this does not justify “doing away with analysis and assuming that judgement [sic] is the only way forward”.⁴ The paper states:⁵

There is a widespread view among the practitioners (including some economists) in the Environment Court and resource management hearings that uncertainties in economic valuation mean economists have nothing to add to the consideration of the environmental effects. This view surfaced in recent Court decisions on the Denniston Mine and the Mount Cass Wind Farm.

1. New Zealand Institute of Economic Research [NZIER] Valuing natural assets (NZIER Working Paper 2013­03, Wellington, May 2013) at i <http://nzier.org.nz/publications/ valuing ­ natural ­ assets ­ nzier ­ public ­ discussion ­ paper ­ 20133> .
2. At i.
3. At i.
4. At 3.
5. At 3.

As cases taken for determination by these hearings can have serious impli­ cations, the uncertainty over economic valuation is a problem needing remedy rather than an issue to be excluded from consideration.

In light of these comments, this article:

(1) Provides a background to the discussion around valuation of natural assets and ecosystem services.

(2) Sets out what the courts have said about the economic valuation of natural assets under the Resource Management Act 1991 (RMA).⁶

(3) Briefly outlines the various approaches to economic valuation and natural assets.

In summary:

(1) There is increasing interest in the valuation of natural assets and ecosystem services, both internationally and within New Zealand.

(2) Under the RMA, economic considerations are an integral component of sustainable management. Economic efficiency is to be considered by decision- makers both for resource consent applications and for plan provisions.

(3) However, an economic analysis is only one component of the overall assessment which is to be made. A holistic approach is to be preferred, so that while an economic analysis can be helpful, the RMA requires a wider exercise of judgement.

(4) The RMA does not require a quantitative and explicit cost-benefit analysis of effects on natural assets to be undertaken, although the implications of the recently amended s 32 remain to be seen.

(5) The courts have generally expressed considerable reservations about the usefulness of economic valuations of effects on natural assets.

(6) It is important to distinguish between valuing natural assets and “putting a price” on those assets. Not all values can be monetised.

(7) If various contentious issues around models and methodologies for valuation can be resolved within the context of a national policy about such issues, the outcome may well be more robust and defensible decision­ making.

6. While this article focuses on decision­making under the Resource Management Act 1991 [RMA], I consider that the principles applied under the RMA are likely to equally apply to decision­making under the Conservation Act 1987.

2. VALUATION OF NATURAL ASSETS AND ECOSYSTEM SERVICES — BACKGROUND7

2.1 The Growing Recognition of the Role of Ecosystem Services in Wellbeing and Prosperity

Over recent years, considerable progress has been made in better understanding the importance of the natural environment in contributing to the economic and social performance of society. This value is best explained in terms of the “services” provided by the natural environment. This “ecosystem services” approach has been widely adopted following the publication in 2003 of the Millennium Ecosystem Assessment (MA) by the United Nations.⁸ The MA identifies four broad categories of ecosystem services:

• provisioning services
• regulating services
• cultural services
• supporting services.

Table 1 below provides examples of the different types of ecosystem services within these broad categories.

The thinking of the MA was further developed by the work of Economics of Ecosystems and Biodiversity, or TEEB. TEEB was conceived at a meeting of G8 environment ministers in Potsdam in 2007. Its goal is to end “the economic invisibility of nature” — to help stakeholders and beneficiaries recognise the value of ecosystem services, those benefits that nature provides to the human economy. Understanding the problem of biodiversity loss in its complex social, economic and policy dimensions is a necessary prerequisite for any proposed solution, and this also underpins the guiding philosophy of TEEB.⁹

TEEB’s key concepts are:

(1) Natural resources make important contributions to long­term economic performance and should be considered economic assets.

(2) We cannot manage what we do not measure. The loss of ecosystem services

7. Much of the discussion in this section is taken from Department for Environment, Food & Rural Affairs An introductory guide to valuing ecosystem services (Defra, UK, March 2011)

<www.gov.uk/government/publications/an­introductory­guide­to­valuing­ecosystem­ services>.

8. See <www.unep.org/maweb/en/index.aspx>.
9. See <www.teebweb.org> and P Sukhdev “Putting a Price on Nature: The Economics of Ecosystems and Biodiversity” (2011) 1(6) The Solutions Journal 34 <www. thesolutionsjournal.com/node/823>.

Table 1: MA categories of ecosystem services and examples

is often overlooked because most of them, such as soil retention or spiritual values, are public goods and services.

(3) Subsidies to fisheries, fossil fuel industries, and other potentially harmful

activities should be measured and reported annually; the perverse components of these subsidies should be tracked, reduced, and eventually phased out altogether.

Building on this work, there is now widespread and increasing interest in ecosystem services, “green accounting” and “valuing natural assets” by intergovernmental agencies,¹⁰ business organisations¹¹ and various NGOs and think tanks.¹²

The intergovernmental and international developments are being comple­ mented by a range of work being done at the country level by a number of states. For example, in 2011 the United Kingdom published a White Paper titled The Natural Choice: securing the value of nature¹³ which sets out the UK Government’s policy on securing the value of nature to ensure that a healthy, properly functioning natural environment is the foundation of sustained

10. For example, in October 2010 the Wealth Accounting and the Valuation of Ecosystem Services [WAVES] partnership was launched by the World Bank (funded by the United Kingdom, France, Norway, Germany, the Netherlands, Denmark, Japan and the European Commission). This partnership works with a range of central banks and ministries of finance and planning to integrate natural resources into development planning through environmental accounting. As part of its work WAVES is looking to develop internationally agreed guidelines for ecosystem accounting; see <wwwwavespartnership.org>. In January 2013 the intergovernmental platform on Biodiversity and Ecosystem Services [IPBES] had its first meeting of the plenary. IPBES is an independent intergovernmental body open to all members of the United Nations. The objective is to build IPBES as the leading intergovernmental body for assessing the state of the world’s biodiversity and ecosystem services; see <www.ipbes.net>. The Convention on Biological Diversity is also active in this area; see, for example, Secretariat of the Convention on Biological Diversity Ecosystem Goods and Services in Development Planning: A Good Practice Guide (SCBD, Montreal, 2010) <www.cbd.int/development/doc/cbd­good­practice­guide­ecosystem­booklet­ web­en.pdf >. See also I Mulder and others The NCD Roadmap: Implementing the four commitments of the Natural Capital Declaration (UNEP Finance Initiative, Geneva and Global Canopy Programme, Oxford, May 2013) <www.unepfi.org/fileadmin/documents/ ncd_roadmap.pdf >.
    11. Such as the World Business Council on Sustainable Development [WBCSD] with the introduction of tools for business including the Corporate Ecosystem Services Review and Corporate Ecosystem Valuation. These tools are designed to inform business decisions by explicitly valuing both ecosystem degradation and the benefits provided by ecosystem services; see <www.wbcsd.org/publications­and­tools/tools.aspx>.
12. See, for example, the proceedings of the 17th Katoomba meeting held in Hanoi, Vietnam in June 2010 <www.katoombagroup.org/events/Vietnam_2010/index.php> and the Ecosystem Services Partnership <www.es­partnership.org>. Also see generally <www. ecosystemmarketplace.com> and the World Forum on Natural Capital held in Edinburgh, Scotland in November 2013 <www.naturalcapital.com>.
13. Department for Environment, Food & Rural Affairs The Natural Choice: securing the value of nature (Defra, London, June 2011) <www.official-documents.gov.uk/document/ cm80/8082/8082.pdf >.

economic growth, prospering communities and personal wellbeing. This is an overarching cross­government document, with a large number of commitments. Work flowing from the Natural Choice White Paper includes:

• UK National Ecosystem Assessment (UKNEA) — the first analysis of the UK’s natural environment in terms of the benefits it provides to society and continuing economic prosperity.¹⁴
• Roadmap on natural capital accounting (December 2012) — part of the Measuring National Well­being programme, which is developing a roadmap to full inclusion of natural capital in the UK Environmental Accounts.¹⁵
• Natural Capital Committee (NCC) — an independent committee reporting to the centre of Government on the state of English natural capital, including advice on where, when and how natural assets are being used unsustainably, how Government should prioritise action, and research priorities to improve future advice. It published its first State of Natural Capital report in April 2013.¹⁶
• Ecosystems Market Task Force (EMTF) — a business­led, independent task force which is reviewing the opportunities available to UK business that could help them develop green goods, services, investment vehicles and markets which value and protect the environment and look for ways in which companies can improve both the environment and their bottom line.¹⁷
• Ecosystems Knowledge Network — a knowledge transfer project providing a resource to support on­the­ground delivery.¹⁸

In Australia, work is being undertaken by the Australian Bureau of Statistics on the development of a System of Environmental Economic Accounting (SEEA) which is an accounting framework that records the stocks and flows relevant to the analysis of environmental and economic issues, including ecosystem services.¹⁹

In New Zealand, the Sustainable Business Council has commenced a programme of work on Business and Biodiversity and Ecosystem Services which includes consideration of the role of ecosystem services and “valuation of natural assets”. The New Zealand Treasury is working on a “living standards tool” designed to assist policy analysis to consider key elements of the “living standards framework” which includes natural assets.²⁰

14. See <www.uknea.unep­wcmc.org/>.
15. See <www.ons.gov.uk>.
16. See <www.defra.gov.uk/naturalcapitalcommittee/>.
17. See <www.defra.gov.uk/ecosystem­markets/>.
18. See <www.ekn.defra.gov.uk/>.
19. See <www.abs.gov.au/AUSSTATA/abs@nsf >.
20. See New Zealand Treasury Improving the Living Standards of New Zealanders: Moving

2.2 The Objectives of Valuation Methods

Many, if not most, of the above initiatives are working on methods for valuing and measuring the costs and benefits of various policy and development choices in terms of ecosystem services. A significant part of this work involves economic valuation methodologies.

Economic valuation attempts to elicit public preferences for changes in the state of the environment in monetary terms and can therefore provide evidence that is appropriate for use in a cost-benefit analysis. Ecosystems and their associated services have economic value for society because people derive utility from their actual or potential use and also value services for reasons not connected with use (ie non­use values) such as altruistic, bequest and stewardship motivations.

This concept of value focuses on the contribution to human welfare — an anthropocentric view — which is seen as the most relevant to policy­making. While it is recognised that the natural environment has intrinsic value (ie is valuable in its own right), such non-anthropocentric value is, by definition, beyond any human knowledge. However, while an anthropocentric approach is limited to capturing the value to human welfare, it is important to note that this value may include preferences that individuals have that relate to the wellbeing of animals, plants etc. It is also important to note that the application to policy appraisal is not related to the total value of ecosystems but, rather, to valuing changes in ecosystem services.

The underlying case for the valuation of ecosystem services is that it will contribute towards better decision­making, ensuring that policy appraisals fully take into account the costs and benefits to the natural environment.

Many indicators suggest that we are using the natural environment in a non­sustainable way. Ecosystems can be characterised as environmental assets that, like other capital assets, provide a flow of services over time. If these services are consumed in a sustainable manner, the capital can be kept intact. In recent decades, however, ecosystems have been under increasing pressure as a result of human activity; the MA found that “nearly two thirds of the services provided by nature to humankind are found to be in decline worldwide. In effect, the benefits reaped from our engineering of the planet have been achieved by running down natural capital assets.”

Valuing ecosystem services serves a number of purposes. Valuing the benefits — both current and future — from the natural environment illustrates its significant contribution to wellbeing and the high dependency of society

from a Framework to Implementation (New Zealand Government, Wellington, June 2012) <www.treasury.govt.nz/publications/media­speeches/speeches/livingstandards/sp­ livingstandards­paper.pdf >.

on its ecological base. In one sense, the natural environment is of infinite value since it underpins and supports all human activity. However, for policy­ making, the more relevant application of valuation is to marginal changes in the environment.

In a policy appraisal context, valuing ecosystem services can help in:

• determining whether a policy intervention that alters an ecosystem condition delivers net benefits to society;
• providing evidence on which to base decisions on “value for money” and prioritising funding;
• choosing between competing uses — eg of land use;
• assessing liability for damage to the environment; and
• wider communication — eg to the public and land managers on the value of the environment.

Adopting an ecosystem services framework may provide new insights for policy development — for example, in understanding how conservation policies in the future can be best targeted to deliver our environmental priorities. It may also help in creating markets for services, including payments for ecosystem services, as valuation provides evidence to underpin the development of such policy instruments.

Although guidance already exists to help capture some of these environ­ mental impacts, using an ecosystem services framework potentially allows the analyst to capture the full range of environmental impacts more systematically, linking ecological effects to changes in human welfare. While many environ­ mental impacts are incorporated within policy appraisal and progress has been made in valuing these impacts, in practice it has proved difficult to incorporate impacts on ecosystems with the risk that the value of these impacts are not fully accounted for in decision­making. The use of ecosystem services as a framework is seen as an opportunity to overcome some of these difficulties, but many challenges remain.

3. ECONOMICS UNDER THE RMA — THE GENERAL PRINCIPLES21

3.1 Resource Management Act Provisions

Economic considerations are intertwined with the concept of the sustainable management of natural and physical resources. Section 5(2) refers to enabling

21. The subject of economics and the RMA has not received extensive commentary, but see, for

“people and communities to provide for their ... economic ... well being” as a part of the meaning of “sustainable management”.

When considering an application for a resource consent, a decision­maker must have particular regard (amongst a range of matters) to:²²

the efficient use and development of natural and physical resources

When preparing a policy statement or a regional or district plan, s 32 requires councils to prepare an evaluation which demonstrates they have considered the costs, benefits and alternatives of a proposed policy. Section 32 states:²³

Requirements for preparing and publishing evaluation reports

(1) An evaluation report required under this Act must—

(a) examine the extent to which the objectives of the proposal being evaluated are the most appropriate way to achieve the purpose of this Act; and

(b) examine whether the provisions in the proposal are the most appropriate way to achieve the objectives by—

(i) identifying other reasonably practicable options for achieving the objectives; and

(ii) assessing the efficiency and effectiveness of the provisions in achieving the objectives; and

(iii) summarising the reasons for deciding on the provisions; and

(c) contain a level of detail that corresponds to the scale and significance of the environmental, economic, social, and cultural effects that are anticipated from the implementation of the proposal.

(2) An assessment under subsection (1)(b)(ii) must—

(a) identify and assess the benefits and costs of the environmental, economic, social, and cultural effects that are anticipated from the implementation of the provisions, including the opportunities for—

(i) economic growth that are anticipated to be provided or reduced; and

(ii) employment that are anticipated to be provided or reduced; and

example, K Counsell and others “Objective RMA Decision-making: Cost Benefit Analysis as an Economic and Practical Framework” [November 2010] RMJ 4; C Kirman and others Economics and the RMA (NZLS CLE Ltd, NZ Law Society, 2004); T Lowe “An Uncertain Purpose: The Position of Economic Well­being in Section 5 of the Resource Management Act 1991” (LLB (Hons) dissertation, University of Otago, 2010).

22. Section 7(b).
23. This section was introduced by s 70 of the Resource Management Amendment Act 2013 and operates for all purposes from 3 December 2013. It replaces the former s 32.

(b) if practicable, quantify the benefits and costs referred to in paragraph (a); and

(c) assess the risk of acting or not acting if there is uncertain or insufficient information about the subject matter of the provisions.

Section 32 is the more comprehensive requirement. That is because when considering a policy position, a council is likely to be able to consider a wider range of alternatives, including the alternative of not acting. By contrast, an applicant for a resource consent is much more likely to be restricted in terms of being able to consider alternatives.

“Effects” are defined²⁴ widely and include economic effects, and effects on wellbeing generally, now and in the future and cumulatively over time.

3.2 Wide Exercise of Judgment Required Compared with a Strict Economic Approach

In Geotherm Group Ltd v Waikato Regional Council ²⁵ the Environment Court considered the requirements of s 32 (as it then was) as it applied to the setting of geothermal discharge thresholds in the Waikato Regional Council’s regional plan.

In its decision, the Environment Court concluded that:

[48] While acknowledging the usefulness of a marginal cost-benefit analysis, we also consider that a section 32 analysis requires a wider exercise of judgment in determining whether or not a rule is the most appropriate method of achieving the objectives of the plan and the purpose of the Act. We have regard to the economic evidence in this context.

In 2011, in Carter Holt Harvey Ltd v Waikato RC,²⁶ the Environment Court considered appeals against provisions of the Proposed Waikato Regional Plan to address the adverse effects of the taking and use of ground and surface water. The Court confirmed that the RMA includes economic efficiency as a consideration under s 32, but that is only one of the matters to be taken into account:

[177] There has been considerable debate about the extent of the relevance of economic evidence under the Act. Economic evidence can cover a wide spectrum. It can address macro and micro economic considerations.

24. RMA, s 3.
25. Geotherm Group Ltd v Waikato Regional Council A151/06, 19 November 2006. 26 Carter Holt Harvey Ltd v Waikato RC [2011] NZEnvC 380.

It can address international, national, regional and local economic considerations. It can provide an in-depth cost/benefit analysis as to the use of alternative sites or methods, or as to doing or not doing something. These examples are by no means exhaustive.

...

[181] Thus, there can be no doubt that the Act includes economic consid­ erations. But the manner in which such considerations are to be taken into account is sometimes complex and depends on the nature of each individual case. Economics is just one of the various threads discernible in the Act which contributes to the attainment of sustainable management.

The Court considered that the complexity of the economic evidence presented was compounded by the fact that different methodologies were employed and that there was no consensus as to appropriate base data.²⁷ The Court went on to state that for economic evidence to be useful, there needs to be clear and ideally agreed identification of the issues to be addressed and the methodologies to be applied when addressing those issues.²⁸

In evaluating the cost-benefit analysis undertaken by the parties, the Court stated that it was not possible, in this situation, for one cost-benefit analysis to be preferred over another because:

• [199] The assessment of such modelling includes a number of factors that need to be evaluated including:
  • [a] The context and framing — this includes the methodologies applied and the range of factors to incorporate into the analysis, and specific prediction choices;
  • [b] The uncertainties — there are always uncertainties about inputs that drive a cost/benefit assessment. This includes uncertainties about such factors as the amount, if any, of downstream irrigation displaced by consumptive takes upstream at Karapiro;
  • [c] The structure — the model structure needs to reflect reality and where different structures or methodologies are used, this increases uncertainty.

The Court concluded that:

27. At para [182].
28. At para [185].

• [200] Because there are so many variables that underlay the economic analysis, there can be no absolute answer. To this extent the economic evidence has its limitations. To enwrap issues, that rely to a large extent on human rationality, within fixed mathematic formulae, is confounded by the many variables that human rationality gives rise to. Further, a slight change to any one of the variables could give rise to dramatically different results.

While the Court agreed that cost-benefit analysis did give an insight into the potential economic effects of displacing hydro generation with water for dairy irrigation,²⁹ it was critical of the fact that the cost-benefit analysis was too narrowly constructed³⁰ and did not take into account the contribution of dairying to the regional economy.³¹

It is interesting to note the new s 32(2)(b) in force across the country since 3 December 2013. This section for the first time includes reference to quantifying the benefits and cost (if practicable) of environmental, economic, social and cultural effects. Given the increasing prominence given to valuation methodologies ever since the 2011 Carter Holt Harvey case, the ambit of this new section is likely to be the subject of much debate and judicial comment.

3.3 Section 7(b)

In general terms, the evaluation of economic efficiency is not an end in itself. An efficient use of resources in an economic sense must be weighed against broader environmental factors.³²

Consent authorities do not need to determine the relative efficiency of the use of resources, compared with other possible uses of those resources and the exclusion of the activity,³³ and s 7(b) does not require consideration of the use or development of other resources that might have been used instead.³⁴

It is the broad aspects of economic efficiency that are relevant, rather than narrower considerations such as financial viability or potential profit for a developer.³⁵

29. At para [201].
30. At para [202].
31. At para [203].
32. Intercontinental Hotel v Wellington CC W15/08. Thus the purpose of the RMA is sustainable management, not the efficient use, of natural and physical resources.
33. Awly Developments Ltd v Christchurch CC EnvC103/02.
34. Cullen v Kaipara District Council EnvC A015/99. However, see the following discussion on the consideration of alternatives in the Lower Waitaki and Project Hayes decisions.
35. NZ Rail Ltd v Marlborough District Council [1993] NZCA 27; [1994] NZRMA 70 (HC).

Section 7(b) is also relevant in assessing the efficiency of methods such as plan provisions under the Act and accordingly has a relationship to s 32.³⁶

The High Court has stated³⁷ that because s 7(b) refers to the efficient use and development of “natural and physical resources” the definition of that term indicates that s 7(b) clearly focuses on “tangibles”. In the case, the High Court found the Environment Court misconstrued the intended focus of s 7(b) expecting an analysis that would include a comparison of natural and physical resources with “intangible landscape values”.³⁸ This statement by the High Court, while not critical to the outcome in that case, is difficult to reconcile with an ecosystems services approach to natural resources.

4. THE ECONOMIC VALUATION OF NATURAL ASSETS IN NEW ZEALAND

There has been considerable uncertainty around the appropriateness of economic valuation of natural assets or environmental values in the context of decision­making under the RMA.

4.1 Otago Regional Plan: Water

In 2002 the Environment Court released a decision on minimum water flows in the Otago region.³⁹ The Court considered the appropriateness of economic valuations of non­use values. In this situation, the non­use values attached to water included the maintenance of instream ecology and habitat.

[159] In any proper analysis of economic matters it is our view that the valuation of the non­use values including externalities are essential to any proper balancing for sustainable management under s 5 of the RMA.

In undertaking this balancing, the Court was satisfied that the minimum flow figures it proposed adopted an appropriate balancing of competing interests.

36. Marlborough Ridge Ltd v Marlborough District Council [1997] NZEnvC 322; [1998] NZRMA 73.
37. Meridian Energy Ltd v Central Otago District Council [2010] NZHC 1390; [2010] NZRMA 477 (HC). 38 At paras [83] and [84].

39 Minister of Conservation v Otago RC C071/02.

• 4.2 North Bank Tunnel — Waitaki River (Lower Waitaki )

This Environment Court decision⁴⁰ concerned an appeal against water permits granted by the Canterbury Regional Council to Meridian Energy. The permits were to take water from the Waitaki Dam Reservoir for Meridian’s North Bank Tunnel Concept (NBTC), a hydropower proposal which was expected to generate 1100 GWh per year.

In dealing with s 7(b) the Environment Court’s discussion around efficient use was intertwined with the question about the extent to which alterations need to be considered.

The Court stated:

[201] We conclude that the role of a consent authority, when having particular regard to section 7(b), is, where possible, to internalise the effects of a proposal, so that the cost[s] of the externalities are imposed on the consent holder. It is then left to that person to decide whether their proposal can compete against others in the market. Consequently it is not usually necessary to consider alternative uses of the resources in question, or the use of alternative resources to obtain a similar benefit. However, there are at least three exceptions:

(1) where the costs cannot be fully internalised to the consent holder;

(2) where there is no competitive market (eg, in congestion on roads where the relevant resource is the land near those roads; we also note there is a very limited market in water permits); or

(3) where there is a matter of national importance in Part 2 of the Act involved and the cost-benefit analysis requires comparing measured and unmeasured benefits and costs (as is usually the case) so that the consent authority has to rely principally on its qualitative assessment, eg TV 3 Network Services Limited v Waikato District Council.⁴¹

After discussing the extensive evidence presented in the case, the Court went on to set out its findings on the cost-benefit analysis.

40. Lower Waitaki River Management Society Inc v Canterbury Regional Council C080/09 [Lower Waitaki].
41. TV 3 Network Services Limited v Waikato District Council [1997] NZRMA 539, [1998] 1 NZLR 360 (HC). The High Court in the Project Hayes case (see below part 4.3) sub­ sequently disapproved of this assessment ( paras [76], [85] to [90]) insofar as it imposes a requirement to consider alternatives in the situations listed rather than the ability to consider them in any particular case. Consideration of alternatives does not arise by virtue of s 7(b). Rather, the issue is more whether under s 104(1)(c) consideration of alternatives is “relevant and reasonably necessary to determine the application” ( para [65]).

[525] Our role is to determine, firstly, whether there is an overall net benefit, taking account of both the measured costs and benefits and the unmeasured externalities that remain after remedy and mitigation. Secondly, and only if there is a net overall benefit, we need to decide whether we should have regard to possible alternative uses of the resources or, in special cases like this one where the resources proposed to be used are of national importance under section 6, the use of alternative resources to produce the same or similar benefits. The third step, if we get there, is to decide what alternatives we should consider, and then to consider them. The final task in considering the efficient use and development of the natural and physical resources involved is to draw a conclusion as to whether the NBTC is an efficient use of the natural and physical resources involved.

[526] Considering both the measured benefits and the positive and negative externalities that remain, we conclude that the NBTC does produce a net economic benefit.

Importantly, the Court did not state that a full cost-benefit analysis involving valuation of natural assets is required by s 7(b), or that the consent should be declined if the analysis showed that there was not a net economic benefit.

4.3 Project Hayes

The Environment Court⁴² took its comments in Lower Waitaki several steps further in Maniototo Environmental Society Incorporated v Central Otago District Council [Project Hayes].⁴³ This case concerned a proposal by Meridian Energy to operate a wind farm on the Lammermoor Range in Central Otago. In declining consent, the Environment Court held that Meridian was required by the RMA to produce evidence of quantifiable costs and benefits even where such quantification could not be performed using market techniques. The Court held that if that evidence had been provided, there was at least some likelihood that the wind farm proposal would not be found to be efficient in cost-benefit terms.

On appeal,⁴⁴ the High Court considered the Environment Court decision in detail. The High Court held that the Environment Court had made an error of law by stating that when considering an application for a resource consent,

42. Comprised of substantially the same members of the Court in the Lower Waitaki case.
43. Maniototo Environmental Society Inc v Central Otago District Council EnvC C103/09 [Project Hayes].
44. Meridian Energy Ltd v Central Otago District Council [2010] NZHC 1390; [2010] NZRMA 477 (HC).

s 7(b) requires a comprehensive cost-benefit analysis, including a monetised valuation of effects on natural assets.⁴⁵

The High Court began by discussing the approach used by the Environment Court:

[95] Building on the formulation in Lower Waitaki that economic efficiency generally requires all credible alternatives to a proposal to be identified and included within a cost benefit analysis, the Court decided:

[242] ... section 7(b) requires a comprehensive and explicit cost-benefit analysis of the proposal. In that analysis:

(a) where market valuations are not available, non­market techniques may be used; and

(b) where the values of the market are different from those of society, alternative societal values may be applied.

The idea behind the cost-benefit analysis is to assess, firstly, whether the proposal has a positive net benefit, and then whether there are credible alternative uses of the resources, or credible alternative resources that could produce the desired output, which have a greater net benefit. ...

...

[98] A theme of seeking to maximise the quantification of values through s 7(b) can be traced through the Environment Court’s decision. The [Environ­ ment] Court explained:

[226] We are uncomfortable with a cherry­picking approach to efficiency. We prefer to follow the decision of the Court (slightly differently composed) in Lower Waitaki River Management Society Incorporated v Canterbury Regional Council:⁴⁶

We consider that efficiency in section 7(b) of the RMA requires a consent authority to consider the use of all the relevant resources

45. The High Court also found that the Environment Court had erred in its interpretation of s 7(b) by finding that that section required that alternatives must be considered. Rather, they can be considered under s 104(1)(c) as being “relevant and reasonably necessary to determine the application”; see paras [65], [76]–[94].
46. Lower Waitaki River Management Society Incorporated v Canterbury Regional Council

C80/2009 at [196].

and, preferably, their benefits and costs. It is nearly meaningless to consider the benefits of only some of the resources involved in the proceeding because the artificial weighting created by sections 5 to 8 of the Act will not be kept within the statutory proportions if the only matters given the “particular regard to” multiplier (see Baker Boys Limited v Christchurch City Council)⁴⁷ in section 7(b) are those which are not identified elsewhere in section 7. Further, it is very helpful if the benefits and costs can be quantified because otherwise the section 7(b) analysis merely repeats the qualitative analysis carried out elsewhere in respect of sections 5 to 8 of the Act ... [emphasis in original]

In the Lower Waitaki case the Court had gone on to say in the next paragraph that “the potential power of s 7(b) is in giving a relatively more objective measure of the efficiency of the proposal”.⁴⁸

The High Court continued:

• [101] Finally, when deciding whether the wind farm should be approved under the operative District Plan the Court said:

[745] The most objective way of testing whether the wind farm would be sustainable management of the Lammermoor’s resources is whether it would be an efficient use of those resources under section 7(b) of the Act. On the evidence that has been presented, we find that the use of the wind resource is efficient, but consider it of at least medium likelihood that addressing the evidential deficiencies identified would lead us to conclude that a wind farm on the Lammermoor was not an efficient use and development of natural and physical resources. Further, Meridian has also failed in the backup to that, in that it has not sufficiently analysed relevant alternatives.

The application was refused. In part this reflected the Court’s view that Meridian, [Central Otago District Council] and the Crown had failed to put full evidence before the Court about all the costs of the proposal which “would have further increased the objectivity of this decision”.⁴⁹

The High Court considered that the Environment Court’s comments in para 745 quoted above provided considerable insight into the Court’s thinking:

47. Baker Boys Limited v Christchurch City Council [1998] NZEnvC 144; [1998] NZRMA 433 at para [98]. 48 At [197].

49 At [757] (5).

• [102] ... Clearly its desire for quantification and objectivity had significantly influenced its approach to the s 7(b) efficiency criterion (and to the ultimate issue of sustainable management). On the evidence actually presented the Court would have found that the use of the Lammermoor wind resource was efficient. Nevertheless the Court decided that if the evidential deficiencies (which we interpret as the lack of evidence applying the non­market techniques and alternative societal values mentioned by Dr Layton) had been remedied there was at least a “medium likelihood” the Court would have concluded that the wind farm was not efficient. (emphasis in original)

At the Environment Court, Dr Layton had stated in his evidence:

8.25 Non­market valuation techniques are complex and often contentious. Where there are no such valuations available, the weighting of market and non­market impacts is undertaken by consent authorities as part of their broad overall judgement of applications under Part II of the RMA. My understanding is that the relevant experts providing evidence for Meridian Energy have assessed the environmental effects of the wind farm as having an acceptable impact.

The High Court considered that this evidence was the source of the Environment Court’s statement that the comprehensive and explicit cost-benefit analysis it had in mind should use non­market techniques where market values are not available and that alternative societal values could be applied when the values of the market differ from those of society.

The High Court considered the requirements of s 32 (as it was then), noting that it does not carry any mandatory requirement for all the benefits and costs to be quantified in economic terms, and no such requirement can be reasonably inferred:

• [107] The issue whether s 32 requires a strict economic theory of efficiency or a more holistic approach was raised before Woodhouse J in Contact Energy Limited v Waikato Regional Council.⁵⁰ He declined to interfere with the Environment Court’s conclusion that while economic evidence can be useful, a s 32 analysis requires a wider exercise of judgment. This reflects that it is simply not possible to express some benefits or costs in dollar or economic terms. For example, the loss of an ecosystem such as a wetland hosting a large bird population which is going to be overwhelmed by land reclamation may not be capable of expression in dollar terms.

50 [2006] NZHC 1523; [2007] 14 ELRNZ 128 at [47]–[51] and [88]–[92].

• [108] Likewise it would be difficult, if not impossible, to express some of the criteria within Part 2 of the Act (ss 5–8) in terms of quantitative values. We take by way of example the following paragraphs in s 7:

  (c) The maintenance and enhancement of amenity values:

(d) Intrinsic values of ecosystems:

(f ) Maintenance and enhancement of the quality of the environment:

If any of these matters are relevant, the consent authority “shall have particular regard to” them even if they are only capable of expression in qualitative, as opposed to quantitative, terms. As Dr Layton said, in this situation it is necessary for the consent authority to weigh market and non­market impacts as part of its broad overall judgment under Part 2 of the RMA. We have not been referred to any provision stating that this process should be exercised or expressed in dollar terms or by some other economic formula. (emphasis in original)

In deciding that an explicit monetised cost-benefit analysis was not required by the RMA, the High Court said:

• [110] [Resource consent] decisions involve an evaluation of the merits by committees of elected councillors, or a panel of commissioners (as here), and, if there is an appeal, by the Environment Court. A degree, even a relatively high degree, of subjectivity is virtually inevitable. It needs to be kept in mind that the scheme of the RMA is that decisions are made by a number of persons acting together. Persons on the Regional or District Council, or Committee, or panel of the Environment Court, discuss these “subjective” evaluations and reach a consensus. The outcome is not one person’s evaluation, except in simple cases of delegation to a single commissioner.

• [111] Parliament has not mandated that the decisions of consent authorities should be “objectified” by some kind of quantification process. Nor does it disparage, as a lesser means of decision making, the need for duly authorised decision makers to reach decisions which are ultimately an evaluation of the merits of the proposal against relevant provisions of policy statements and plans and the criteria arrayed in Part 2. That process cannot be criticised as “subjective”. It is not inferior to a cost benefit analysis. Consent authorities, be they councillors, commissioners or the Environment Court, and upon appeal the High Court Judges, have to respect that reality and approach decision making in accordance with the process mandated by the statute. It is not a good or bad process, it simply is the statutory process.

• [112] Before leaving this cost benefit issue we should briefly comment on the Environment Court’s approach to internalising costs. The Court found⁵¹ that costs in terms of landscape and various other matters had not been internalised to Meridian.

...

• [114] The underlying purpose of internalising these externalities is to enable all the benefits and costs to be quantified so that a net benefit or net loss, as the case may be, can be calculated. The problem is that where all the benefits and costs are not the subject of market transactions there is no readily quantifiable financial sum reflecting the demand or price to be paid for such benefits or the imposition of detriments. To put dollars on them requires some sort of imputing of demand. Sometimes this can be achieved by way of surveys: “How much would you pay to visit a national park?” Sometimes it is not possible to put dollar terms on them. (emphasis in original)

• [115] But it is all very controversial, as Dr Layton confirmed. We cannot accept that it was within the contemplation of the RMA that failure to fully internalise costs would carry the consequences that the Environment Court contemplated.

• [116] While we can understand the Environment Court’s desire to maximise objectivity in the decision making process, it is our view that the Court went too far when it decided that s 7(b) required a comprehensive and explicit cost benefit analysis in this case. We believe this resulted in s 7(b) being overplayed. Rather than dominating any other relevant Part 2 criteria, s 7(b) was intended to be weighed and balanced alongside them. In particular Parliament did not intend other criteria in s 7 to receive a truncated evaluation because the subject matter had already been evaluated in the s 7(b) analysis.

In January 2012⁵² Meridian surrendered the land­use consent granted by the Central Otago District Council.

51 At [703].

52 Maniototo Environmental Soc Inc v Central Otago District Council [2012] NZEnvC 23.

4.4 Parkins Bay

The Parkins Bay case⁵³ concerned a proposal to build and operate a golf resort, including golf course and clubhouse, in addition to 42 residential units at Parkins Bay, Lake Wanaka.

When considering what is meant by the efficient use of natural and physical resources, the Court looked to the Project Hayes⁵⁴ High Court decision in deciding that s 7(b) did not require a comprehensive and explicit cost-benefit analysis.⁵⁵ However, the Court did consider that for a s 7(b) analysis to be useful in adding to the judgement required under s 5, a cost-benefit analysis is the most objective test in deciding whether a proposed use or development of a resource is more sustainable. But:

[233] ... If such an analysis is not supplied, an applicant loses this benefit, but is not penalised because a consent authority cannot have regard to evidence which does not exist.

4.5 Mt Cass Wind Farm56

When considering the effects on environmental values such as biodiversity, landscape and recreational values, in its decision on the proposal by MainPower for a wind farm on the Mt Cass ridge in North Canterbury, the Court stated:

[73] ... Mr Copeland’s opinion is that it is better not to attempt to estimate monetary values for these effects but to leave them to be part of the overall judgement under section 5 of the Act. We agree with him and have considered both the costs and benefits to the local and regional economies in our overall evaluation of the proposal under Part 2 of the Act, where we consider also the benefits of the proposal in the context of renewable electricity generation.

The Court concluded that the proposal would result in an efficient use of the natural and physical resources on the site. This, when considered with the benefits to be derived from the use and development of renewable energy, would satisfy the sustainable management purpose of the Act. While there were undeniable adverse effects on the landscape, visual character and amenity, when

53. Upper Clutha Tracks Trust v Queenstown Lakes District Council [2010] NZEnvC 432 [Parkins Bay].
54. Meridian Energy Ltd v Central Otago District Court [2010] NZHC 1390; [2010] NZRMA 477 (HC). 55 At para [233].

56 MainPower NZ Ltd v Hurunui District Council [2011] NZEnvC 384.

viewed overall, the outcomes for the environment were positive. Accordingly, the Court granted consent to the proposal.

4.6 Escarpment Coal Mine — Denniston Plateau57

This Environment Court decision relates to an application by Buller Coal Limited for resource consents for the proposed Escarpment Mine Project on the Denniston Plateau.

The economics expert witness called by Forest & Bird was critical of the failure of Buller Coal’s witness in not providing an economic analysis of adverse environmental effects potentially caused by the proposed mine. It was contended that non­market matters such as pollution of air, soil and water, loss of indigenous vegetation and animal life, displacement of recreation and tourist activities, visual intrusion and noise disturbance should all be taken into account.⁵⁸

The witnesses, however, did agree that non­market valuation was fraught with difficulties, which included the experimental nature of some of the methods used and reliance on hypothetical questions which might give unrealistic answers. Further, the economists acknowledged that the techniques used to arrive at non­market valuations were time­consuming and resource­ intensive, and that the variable methodologies used in New Zealand did not provide a reliable set of indicative values.⁵⁹

The Court accepted that the best way to evaluate the environmental costs of the proposed mine was to hear evidence and cross­examination from expert witnesses, and, then, weigh up the effects anticipated by those witnesses alongside the effects for which financial consequences can be calculated:

[111] Mr Butcher has not attempted to deny that the project will result in losses to the natural character and ecology of the mined area and to its surrounding landscape. What he said is that the Court has been provided expert evaluation of what those losses are from witnesses with expertise in these areas, and having read their evidence and heard cross­ examination, is in the best position to weigh up the effects that these witnesses anticipate alongside those for which he is able to calculate (within a range) financial consequences. We acknowledge that as a correct and appropriate view.

57. West Coast Environmental Network Inc v West Coast Regional Council and Buller District Council [2013] NZEnvC 47.
58. At para [109].
59. At para [110].

5. VALUATION METHODS — AN OVERVIEW60

5.1 Total Economic Value

The value of natural resources is often considered within the framework of Total Economic Value (TEV), and this framework can be used to value ecosystem services.

TEV comprises use and non­use values and is summarised in Figure 1 below. TEV refers to the total gain in wellbeing from a policy measured by the net sum of the willingness to pay (WTP) or willingness to accept (WTA). The value that we are trying to capture for the purposes of appraisal is the total value of a marginal change in the underlying ecosystem services.

• 5.1.1 Use value

Use value includes direct use, indirect use and option value.

(i) Direct use value

This is where individuals make actual or planned use of an ecosystem service. It can be in the form of consumptive use, which refers to the use of resources extracted from the ecosystem (eg food, timber), and non­consumptive use, which is the use of the services without extracting any elements from the ecosystem (eg recreation, landscape amenity). These activities can be traded on a market (eg timber) or can be non­marketable — ie there is no formal market on which they are traded (eg recreation or the inspiration people find in directly experiencing nature).

(ii) Indirect use value

This is where individuals benefit from ecosystem services supported by a resource rather than directly using it. These ecosystem services are often not noticed by people until they are damaged or lost, yet they are very important. These services include key global life­support functions, such as the regulation of the chemical composition of the atmosphere and oceans, and climate regulation; water regulation; pollution filtering; soil retention and provision; nutrient cycling; waste decomposition; and pollination. Measuring indirect use values is often significantly more challenging than measuring direct use values. Changes in the quality or quantity of a service being provided are often difficult to measure or are poorly understood.

60. For a detailed discussion of these various methods see the NZIER paper above n 1 and the Defra paper, above n 7.

(iii) Option value

This is the value that people place on having the option to use a resource in the future even if they are not current users. These future uses may be either direct or indirect. An example would be a national park where people who have no specific intention to visit it may still be willing to pay something in order to keep that option open in the future. In the context of ecosystems and their services, option value describes the value placed on maintaining ecosystems and their component species and habitats for possible future uses, some of which may not yet be known. Option value can also be thought of as a form of insurance — eg a wide species mix in a particular habitat can provide an insurance function: as conditions change, different species may fulfil key ecological roles.

• 5.1.2 Non-use value

Non­use value (also known as passive use) is derived simply from the knowledge that the natural environment is maintained. There are three main components: bequest value, altruistic value and existence value.

(i) Bequest value

This is where individuals attach value from the fact that the ecosystem resource will be passed on to future generations.

(ii) Altruistic value

This is where individuals attach value to the availability of the ecosystem resource to others in the current generation.

(iii) Existence value

This is derived from the existence of an ecosystem resource, even though an individual has no actual or planned use of it. For example, people are willing to pay for the preservation of whales, through donations, even if they know that they may never actually see a whale.

Non-use value is relatively challenging to capture since individuals find it difficult to “put a price” on such values as they are rarely asked to do so. However, in some circumstances, non­use value may be more important than use value.

The TEV framework and the MA framework for categorising ecosystem services can be seen as complementary. Table 2 shows how both approaches can be combined. The TEV framework is a useful tool for exploring what types of values for each ecosystem service we are trying to elicit. This helps in determining the valuation methods required to capture these values.

Figure 1: Value types within a TEV framework

Table 2: Valuing ecosystem services through the TEV framework

5.2 Methods of Eliciting Values

Valuation methods fall broadly into two main types: economic and non­ economic valuation approaches.

• 5.2.1 Economic valuation

Economic valuation attempts to elicit public preferences for changes in the state of the environment in monetary terms. The main types of economic valuation methods available for estimating public preferences for changes in ecosystem services are revealed preference (RP) and stated preference (SP) methods.

(i) Revealed preference (RP) methods

Revealed preference (RP) methods rely on data regarding individuals’ preferences for a marketable good which includes environmental attributes. These techniques rely on actual markets. Included in this approach are: market prices, averting behaviour, hedonic pricing, travel cost method, and random utility modelling. Market prices and averting behaviour can also be classified under pricing techniques.

(ii) Stated preference (SP) methods

Stated preference (SP) methods use carefully structured questionnaires to elicit individuals’ preferences for a given change in a natural resource or environmental attribute. In principle, SP methods can be applied in a wide range of contexts and are the only methods that can estimate non­use values which can be a significant component of overall TEV for some natural resources. The main options in this approach are: contingent valuation and choice modelling.

Figure 2 shows the different economic valuation techniques and their relationship with the TEV framework.

Figure 2: Techniques for monetary valuation

• 5.2.2 Non-economic valuation

Non­economic valuation — deliberative or participatory — approaches explore how opinions are formed or preferences expressed in units other than money.⁶¹ These deliberative or participatory methods are important in understanding people’s preferences and the process of decision-making and therefore influence (and in some cases may determine) policy choices. However, they do not, in general, easily fit into the more formal process of economic appraisal that aims

to capture the TEV of ecosystem services.⁶²

Perhaps the most controversial aspect of the valuation of biodiversity and ecosystem services is to decide which elements are appropriate to be valued by economic valuation and which by non­economic valuation. It has been said that value is what we receive, while price is what we pay.⁶³ Not all biodiversity and ecosystem services can be priced in economic terms.⁶⁴

6. CONCLUSION

The area of valuation of biodiversity and ecosystem services is rapidly advancing and remains at present a reasonably confused picture. As time goes on, it is likely that the RMA will be increasingly used as a forum for the debate. This review of the case law confirms that, to date, an explicit cost-benefit analysis has not been required by the RMA, and effects on natural assets, such as biodiversity, landscape and recreational values, need not be monetised. Instead, they can be considered in a qualitative manner as part of a holistic assessment. The qualitative holistic assessment must be carried out, regardless

of the extent of economic evidence.

However, in light of the increasing prominence of issues around “valuation of natural assets”, the picture may well be ready for some change. If various contentious issues surrounding methodologies, inputs and models could be

61. However, note that some of these methods are linked to monetary valuation — for example, deliberative monetary valuation; see S Stagl Emerging Methods for Sustainability Valuation and Appraisal (Report for the Sustainable Development Research Network, London, January 2007) <www.pik­potsdam.de/news/public­events/archiv/alter­net/former­ ss/2007/11­09.2007/stagl/literature/stagl_2007.pdf >.
62. It is important to note, however, that in economic valuation studies that use stated preference methods, deliberative or participatory methods are often used in combination. The combined information allows for an improved understanding of the reasons for and motivations of respondents’ valuation responses.
63. Warren Buffett, and subsequently by many others.
64. See, for example, M Rucklehaus and others “Notes from the Field: Lessons Learned from Using Ecosystem Service Approaches to Inform Real World Decisions” [August 2013] Ecological Economics <http://dx.doi.org/10.1016/j.ecolecon.2013.07.009> .

overcome, additional economic evidence could well prove to be of further assistance to decision­making under the RMA. Such advancements would complement the current holistic assessment.

What is clear, however, is that there is an absence of national direction or policy, or even guidance on the use of valuation methodologies to aid decision­ making, be they economic or non­economic methods. This can be contrasted, for example, with the way that the United Kingdom is dealing with the issues. Rather than have these debates progressed on an ad hoc basis through the Environment and appellate courts, or sidelined to a technical decision between economists, I consider that some form of national direction or policy is not only desirable, but critical, to ensure that New Zealand does indeed have full and adequate regard to the efficient use and development of natural resources in order to maximise our social, economic, cultural and environmental wellbeing.