Water bottling highlights the sham that ‘nobody owns water’

Geoff SimmonsEnvironmentLeave a Comment

With the sale of a permit to bottle 40 billion litres of pure artesian water in a drought prone area, the Prime Minister’s line that ‘nobody owns water’ no longer holds water. It is time to quit the weasel words and have an honest conversation about how people aquire, trade and ultimately pay for the right to use our precious fresh water resource. The current first in, first served way of doing things is madness – at the very least the users of this precious natural resource should be paying for the privilege.

It’s also not honest to say ‘nobody owns water’. Article 2 in the Treaty of Waitangi clearly conferred on Maori prior rights with respect to the environment, including freshwater resources. Rather than ignore those rights and allow others to benefit economically from freshwater, the Government should be looking to reach a common understanding with Maori as to how their unique rights are to be recognised and to apply that understanding to the many out-standing tribal claims that relate to specific bodies of water.

No water policy will be enduring if it ignores these unique rights of Maori, yet there is nothing in the current proposal which addresses them. This is a major weakness in what the government is suggesting. Of course the Government recognises that whole issue is political dynamite, so they avoid it.

While the ownership issues are being resolved we have to face up to the reality that private businesses are profiting from using and polluting our fresh water, and they are doing it for free.

Next Steps for Fresh Water

We have already commented on the positives and negatives in the Government’s new plan entitled “Next Steps for Freshwater”; the consultation on this closes on 22 April. In short, it is a mixed bag, although overall it is probably the most environmentally sound piece of policy emanating from the Government compared with other recent reviews of the emissions trading scheme, marine protection and the Resource Management Act (RMA). You can find the Morgan Foundation’s submission and some guidance on how to make a submission yourself here.

The most glaring problem is the Government’s continued determination to ignore the issues of water ownership and charges. The spotlight has gone on this problem thanks to the growing water bottling industry, as well as the Government’s own proposals that water rights become tradeable. Essentially in this consultation the Government has kicked the issues of ownership and pricing for touch, saying it will do further work.

Money for nothing

On one hand we have the Government saying that nobody owns water, and therefore nobody can be charged for using it.

On the other hand we have private companies profiting from our fresh water resource – water bottlers are the most obvious but by no means only example. This issue will only become more substantial if the Government’s proposals to give businesses greater freedom to trade their water use consents, go ahead. No business will trade their water consent out of a sense of public good – they will want to make money out of the deal.

It is only a matter of time before the public wakes up to the fallacy of the Government’s denial of water ownership and demands action. There are ways to take action that would be a win/win for the economy and the environment.

It is glaringly obvious that water is valuable – why else would farmers, assisted by the government, be investing so much in irrigation schemes and equipment? Water creates wealth. We know that irrigation raises the price of a hectare of land by $8,000 – that is a handy capital gain for a farmer. There has already been a substantial transfer of wealth from the environment (a public asset) to individual farmers and other business owners. Water bottling companies are making a profit from water they get for free – a no-brainer business, which highlights the absurdity of not having clearer ownership and pricing regimes around this unique resource.

How to profit from a natural resource without paying

The system at the moment operates on a first come first served basis, making it very easy to make money from fresh water without having to pay. If you want to use fresh water, you simply apply for a consent. There are small charges associated with this, but assuming there are no huge environmental problems with your plan, you’ll get the water. That may sound fine, but what if we all want to use the water and make some money? You can’t, the people that get it first have the right, and you’ve missed out.

What if someone else has a better use for that water? Tough, the person that got it first has the right. It is, quite simply, a crazy way of doing things. You’d think at least the Council would make some money by charging for the right to use the water so that we could all benefit a little bit from the use of a public resource, but no.

Nobody owns water – but you can buy and sell it

To overcome this problem, the Government is looking at improving the tradability of water consents. That way if someone has a better use for the water, they can buy it off the person who already has the consent. We support trading, because at least it makes sure that our precious water is being used in the best way possible.

But nobody is going to hand over a water consent for nothing – they will charge a fee. At this point we can clearly see the value of having that water consent – because someone is making money by selling it. This brings into sharp relief the Government’s rhetoric that ‘nobody owns water’ – but you can buy and sell it.

In exchange for trading we clearly need a resource rental – a charge for water users that are profiting from using a public resource. That should be applied to all commercial water users, not just farmers. That way we can all benefit.

Charging for water

New Zealand needs to move to some form of water pricing to achieve the best use of this valuable and finite resource. In exchange for tradeabilty, the owners of water consents should pay a charge for the water used. Ideally in the longer term we should move to a system where the rights to use water (for a limited time) are periodically auctioned to the highest bidder. In the first instance the money would go to improving the quality of our fresh water resource and help us get swimmable rivers. This approach could also be applied to the right to pollute fresh water, as well as the right to use it. Users and polluters should pay.

At the moment however, the Government are happy to talk about trading water, but not pricing it. The Environment Minister Nick Smith argues that charging would be too complicated.

Would it be too complicated?

Establishing a resource rental is no more complicated than the cost recovery system currently proposed in the Government’s consultation document – the only question is what charge to apply. Part of the charge could be set nationally, and part could be left to local authorities depending on whether they want to attract businesses or generate revenue for water clean ups.

In the longer term as mentioned above, water consents should ideally be auctioned off to the highest bidder to generate income. The market would determine the price, something that the National Party should understand well. What is complicated about that?

Quota Management System

The Environment Minister has compared fresh water to the Quota Management System (QMS), and it is easy to see why.

Like water it isn’t clear who owns the fish, but under the QMS fishers have right to use the fish stocks to catch a certain quota of fish per year. This quota is a valuable asset – worth $4b. So while it isn’t clear who owns the fish, the fishers certainly have a property right.

Under the QMS cost recovery is the norm – the owners of the quota pay for the costs of running the system including science and administration. This is what Minister Smith is proposing for water. However, the initial intent of the QMS was to have a resource rental, a charge so that all New Zealanders got some benefit from the use of a public resource. When the government messed up the Orange Roughy quota, this resource rental concept was downgraded to a simple levy to recover costs. We need to learn from these past mistakes.

The other thing we need to learn from the Orange Roughy debacle that science is never fully certain, so consents need to account for the uncertain nature of water. Water use should be a share of the flow above a certain minimum, with a sinking cap in overallocated catchments. These issues could all do with central consideration and coordination to help regions manage the transition.

Meanwhile we continue to subsidise pollution

Instead of charging water users, the Government continues to subsidise pollution by funding irrigation projects.

Incredibly, the Government’s proposed freshwater cleanup fund can be used to offer further subsidies to dam and irrigation projects. Until water users and polluters are paying for the full costs of their actions on the environment, such subsidies are sheer madness.

As discussed above a better approach would be to have a pricing system for water that provides councils and possibly central government with the funds to invest in protecting water resources. That could involve helping farmers to reduce their water take and pollution.

At the moment the Government is offering handouts to private businesses in the form of free access to a precious resource, and then asking taxpayers to pay for their mess. It simply doesn’t stack up – either environmentally or economically.

Want to know more?

Listen to Geoff talking about water ownership on Radio NZ

Water bottling highlights the sham that ‘nobody owns water’ was last modified: April 22nd, 2016 by Geoff Simmons
About the Author
Geoff Simmons

Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.