We should all have the opportunity to benefit from our fresh water resource in the way that commercial water users (such as farmers) do.

Freshwater – How do we share?

Gareth MorganEnvironment6 Comments

Following the outbreak of campylobacter, Havelock North residents now face a potential water shortage this summer. The full costs of commercial water use and pollution are starting to be felt by ordinary people. It is becoming increasingly clear that clean fresh water is no longer a plentiful resource that we can all use and abuse as much as we want for free. If we all want to continue to benefit from this resource, we have to work out how to share the rights to use it. Commercial water users, including farmers, use and pollute freshwater on a far greater scale than the average citizen yet pay no more for the privilege. Is that fair?

Progress

As a nation we have made progress on water quality in recent years; at least in theory. We have agreed that we want water quality to be maintained or improved, and soon that will apply in every catchment rather than “across a region” (whatever that meant). Communities will agree how they want to use water, then set limits across a series of measures (which themselves are being improved to include measures of ecosystem health). Most dairy farms now exclude stock from waterways, and other farming types will eventually follow suit. The Government has so far failed to install an aspiration for swimmable rivers, but we won’t dwell on that here.

For catchments that want to improve water quality, the limits will be above current levels and sacrifices will have to be made. For catchments that want to maintain water quality, the limits will be close to current levels. Despite all the talk of “headroom” in some catchments, that simply doesn’t square with wanting to maintain or improve water quality.

So soon, in theory at least, all commercial water users will operate in an environment of scarcity where the commons is closed. This applies to both water use (e.g. for electricity generation, irrigation) and water pollution (e.g. nitrogen leaching). Any activity that uses more water or adds more pollution will need to come from efficiency gains or from reductions in activity elsewhere. This raises the question of who gets what rights to use and pollute fresh water – a question that will affect all commercial water users and lies at the heart of economics.

Government Review

The Government has tasked officials and a Technical Advisory Group to solve these issues. This is a positive step, although the Terms of Reference raises more questions than answers. For starters it contains no mention of balancing the environment with economic progress. Water flowing to the sea isn’t a waste, it is a river. Any use of water damages the environment, that is a trade-off we must face up to and deal with, as the citizens of Havelock North are discovering.

The Terms of Reference also downplays the issue of iwi settlement, which is the elephant in the room of any attempt to allocate fresh water rights. We need to tackle it in the same way we did with fisheries. Government reticence over solving this issue is holding back progress

What should a review of this issue canvas?

Allocation

There is no fair way to close a commons. People are used to having unlimited access to a common resource and when that gets closed, there have to be losers. We have to find some way of deciding who has the right to use and pollute freshwater, and how much.

If you grandparent rights to existing users then they win and all potential users (particularly iwi) lose out. Grandparenting also creates terrible incentives for existing users to increase pollution or water use to snaffle a greater share of rights. Alternatively you could divide rights equally among land-owners to recognise potential users, but existing users (some of whom have made large investments) then lose out. The natural capital approach is the middle ground, allocating water rights based on what the land can handle.

Trading and Prices

There is no fair way to close a commons, but at least trading gives you an efficient way of doing it. Once rights are established, by allowing rights to be traded they can move to their highest value use. Regardless of how you allocate rights, through trading a profitable business can thrive by improving efficiency and/or purchasing the rights they need.

Of course if rights are being traded, they will have a price. That is nothing new; there is a price for water use and pollution rights now, it is just hidden in land values. Water users and polluters fear making this transparent, because people will see that they are profiting from a public resource, and demand they pay a rental for it. And they should be worried, because that would be a perfectly sensible outcome. The fact that the taxpayer has paid over $400m to clean up freshwater pollution caused by commercial users is completely nonsensical.

So change is coming, but there is much to be positive about for commercial water users and land-owners. Once the costs of water use and pollution are included in the bottom line, forestry and less intensive farmers could be far more competitive compared with more intensive ones.

Freshwater – How do we share? was last modified: August 25th, 2016 by Gareth Morgan
About the Author
Gareth Morgan

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.