Water trading rights a major tool for solving our freshwater problems

Geoff SimmonsEnvironment

At Waitangi Andrew Little plunged into the freshwater debate, and quickly waded into trouble. Exclaiming that water must not be traded as a commodity makes for a neat sound bite, but doesn’t stand up to scrutiny, much like John Key’s claim that nobody owns water. The fact is that the horse has already bolted – our freshwater is already effectively owned by commercial interests. All trading does is ensure it this precious resource is allocated in a way that maximises national benefit..

Mr Little’s argument

The argument against trading seems to be that water is essential so it shouldn’t be put in the hands of commercial users:

[quote]”We don’t make it, it comes naturally, people need it, it’s life giving. It’s essential and I’m just not sure it’s something we should now go down on creating this big commercial market for.”[/quote]

In reality much of our freshwater is already in the hands of commercial users. Industry, farmers, water bottling companies and electricity generators all draw on our fresh water stocks. These commercial operators also alter the quality of our freshwater through constructing dams, discharging nutrients and chemicals, clearing vegetation and most importantly the way they farm the land. This doesn’t negate Mr Little’s concerns around “life-giving” uses at all, but does highlight that there are two quite different users of our water, at least. The issue is how do we go about allocating access rights around the whole population of users.

Water is already owned

With some of our freshwater is already in the hands of commercial operators, and while these may not be ‘property rights’ in the ‘my house my castle’ sense of the word, they are still a form of property right.

In this sense, Mr Little’s perspective is of as little use of that of John Key when he said that nobody owns water, but acknowledged that the rights to use water are an issue. We should be all able to agree that organisations with resource consents over our rivers and lakes – whether they use the water, or just alter the water quality – all have a form of property right – most akin to a resource consent.

For the sake of getting on and actually addressing the problems here, let’s agree to say that everybody owns our freshwater, but some people or businesses have more rights over its use than others. What we need to do is identify all the uses and set up a framework as to how those uses are prioritised.

How property rights are handed out at the moment

At the moment, resource consents over water are handed out on a ‘first come first served’ basis. They aren’t granted to the most productive or profitable users of water, just the ones that ask first, and are able to meet environmental impact criteria. This process continues until (theoretically) the river or lake gets to the stage where no more degradation is acceptable. Often resource consents aren’t stopped until it is too late, hence our freshwater is in the state it is in today. So in a world of arbitrary allocation of rights like this, Andrew Little’s idea that we shouldn’t use price to prioritise these users is a bit Left field. Is he suggesting the status quo is just fine?

And those property rights already have value – just ask a farmer how much his land price rises when he gets a resource consent to draw water for irrigation. The trouble is that if a better, more profitable use of that water appears, without trading they won’t be able to get access to the water they need to operate. This is a waste of a precious resource like water – it should be used for the most profitable use possible.

By anyone’s measure, this is not a clever way of doing things – a classic tragedy of the commons. That is one reason why trading water is being mooted, including by Gareth in his Waitangi speech – provided that the issue of Treaty claims and of every citizen’s right to access drinking water and to have their environmental bottom lines around clean streams satisfied, are dealt with first. The status quo is so crazy that it has forced some Regional Councils to improvise and allow for transfers of water rights. Yep, water trading is already legal and may be happening by another name – under the radar.

Trading won’t mean more water gets used or polluted

Trading water doesn’t mean more water would be used or polluted. In fact, one of the purposes of trading water is to prevent that happening.

Any water trading system would merely formalise what is happening already –water is already being taken and polluted by commercial operators. People oppose water trading because it involves granting rights to take water or pollute, but the fact is those rights already exist.

Under water trading the rights holder would then be able to trade those rights to use or pollute water. That means if a more profitable use of the water comes along once all the water has been allocated, they can purchase the water rights off the less profitable operators. That makes sense – we want to get the most economic benefit from a given resource that we can. Higher profits ultimately mean more tax revenue to spend on health and education.

Trading could protect individual or environmental rights

It is appropriate that Mr Little be concerned about people being able to access water for drinking and watering their garden. These public rights should be formalised in a water priority use regime – that similarly allowed for customary use, water quality bottom lines, and any negotiated treaty entitlements. Thereafter a trading regime is the best way to allocate the water surplus amongst commercial users, including iwi corporates whose projects would just line up on their merits with anyone else’s.

Such a system would actually be better at protecting the rights of individuals and the environment than the current way of doing things. Again, trading becomes more important when the water is scarce, as the water can be transferred to the users that need it the most. This would make our economy more resilient to drought.

Trading would also allow for rent to be charged

Some oppose trading because they don’t want to see commercial operators profiting from a public resource. As we have established, that profit is already happening. Our public resource is already being used by commercial operators. Currently, these users balk at paying any charge for that right – that privilege needs to be smashed and properly

A trading system would increase the profit generated by each drop of water used, because the water right could be passed to the most profitable use. This benefit should be balanced by charging commercial water users for the resource that they use – a resource rental. That money could be channeled into projects to rejuvenate our rivers and lakes, to the benefit of everyone in the country.

By writing off water trading completely, Andrew Little is casting aside the best tool to help him achieve all he aims for.

If you are having trouble getting your head around the fact that people own water, this video from Geoff may help.


Water trading rights a major tool for solving our freshwater problems was last modified: December 15th, 2015 by Geoff Simmons
About the Author

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.