What price for water? In 2001, Parliamentary Commissioner for the Environment Morgan Williams observed that enhancing and advancing water management is primarily a socio-political challenge, rather than an economic or a technical one. Nearly ten years have passed since two PCE reports (2000, 2001) signaled the need for big changes in the way we manage our water, and gave compelling reasons as to why change was needed sooner, rather than later. But are water markets the answer? I suspect not.
For a year, a government appointed land and water forum has debated the implications and opportunities, the economics and the social-cultural contexts around a better way to manage water resources in New Zealand. Have they come up with a workable solution? Their report lists 53 recommendations, and some are well considered. Others? I am concerned that statistical economic efficiency models and a philosophy that technical solutions can solve any challenge, threaten to overwhelm the social, cultural and environmental realities.
The forum’s observations are largely spot on. Yes, in 10 years, farm and other point source pollution (like sewerage discharges) have diminished. But nutrification – the primary cause of our ‘dirty – even unswimmable – rivers’ has not. There are some good recommendations for what needs to change. But, I can’t see any promise in their key proposal – to allocate or trade water rights in a synthetic market place.
I hope that Nick Smith and his advisers take a deep breath before spending too much time and money on this proposed ‘solution’. Think about the issues around energy spot prices – what pitfalls are we experiencing there? Think of all the examples where market trading has not only failed to protect the resource, it has worked against the good of the resource. Examples that immediately come to mind are the Goulbourn Broken River Catchment/Murray Darling, the Colorado River, and the River Jordan – the sharing of this water resource across nations adds all sorts of complications – and an ‘economic model’ for water allocation has done nothing to protect the river and its tributories from serious decline.
I look forward to the deeper debate – the first-come-first served system has flaws, so something needs changing. Are the forum members looking at symptoms, more than cause though? There is a reluctance (or more likely, a lack of understanding) by those with water rights, to take water conservation and protection as seriously as they should. Financial risk is one way to try to ensure better care, but education must go hand in hand with this. What to do and why are part of the picture, but so is knowing how.
Water rights with user pays and a national water policy plan might bring about action, but encouraging the right action is another challenge altogether. What compels farmers to fence off most of their waterways from stock? Isn’t it about understanding systems? About balancing the benefits of healthier plant, soil and water systems, with the costs of not doing it. In a water rights auction, if a farmer has had to pay over the odds for ‘their’ piece of water, because someone else wanted it badly, how much is left over to protect it for other users?
Farmers are open to managing water better, as with the reduction in point source pollution and fencing off waterways. Farmers understand soil and water don’t they? They know their environmental and economic limits. They have known about ‘sustainable practices’ driving ‘sustainable business’ for longer than we’ve been using the jargon. Our communities – urban and rural, iwi, industry, all of us, need to think about what our goals are. We want healthy soil and water. We want to be able to swim and kayak in our waterways, to relax, to fish, to paint and photograph them, and we want them to continue to support the ecology we value and the progress we want.
Tradable water rights can have a significant downside. They reward ‘economic efficiency’ – yes. But, this efficiency does not necessarily mean being conservative and protective of a resource. Do we want dams or another borefield above more conservative water use and reduced contamination? Progress is fine, but to the Land and Water Forum – please give us a plan for protecting water use that doesn’t sell our future to the highest bidder.
On water and politics…
On a local issue connected to the above discussion. We have local body elections coming up in October and it is fantastic to see the candidates talking about sewerage and water, and about funding action to sort out our beautiful – but declining – local waterways.
Porirua harbour and the neighbouring Pauatahanui inlet need cleaning up. Silt and nutrification aren’t unexpected where there is economic activity, and Porirua is no exception. But, the premise of the RMA (Resource Management Act, 1991) is that we can expect actions to remedy or reduce these undesirable effects, well before reaching the threshold at which there is no going back – before reaching the tipping point. Pauatahanui inlet is close to its tipping point. It’s close to becoming a walkway, there’s so much silt.
Silting is a known side-effect of some dam sites and naturally occurs to some extent in rivers, streams and inlets. It is also the unexpected result of sub-dividing and road construction, as in Porirua’s case – where due care wasn’t taken to contain eroding soil and sediment and where changes in land use have contributed to flooding. The Pauatahanui Inlet has changed in 10 years, some might say, irrevocably – let’s hope not. Poor sub-division management, cracks in underwater sewerage pipes, untreated discharges, and general run-off, combine to diminish the value of the inlet to the ecology it has long supported.
Mayoral candidate Nick Leggett and at least two incumbent Councillors have promised action to reverse the inlet’s serious decline, by remedying the broken pipes, and getting tough on those responsible for all that silt – those ‘muddy waters’. It’s not too late to do everything we can to save this natural jewel for future generations to play in and be proud of.
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You make some good points Robyn. I have a lot of sympathy for the notion of tradable rights for allocating volume to get the most efficient economic outcome, but some of the neoliberals who promote a water market ignore how crude a mechanism tradable rights are, and ignore the common goods such as environmental quality and recreational use. Many years ago, as a study exercise, I tried to develop a mechanism for creating a market in tradable water rights in Otago and Southland based on the old mining privileges. This water is now used for irrigating crops or watering stock, and are private rights attached to the neighbouring land. In my fantasy market, you could allocate a certain flow to protect some environmental or recreational values (e.g. enough for certain life forms, such as fish), but that’s no guaranteed protection as many of these channels can virtually dry up in summer and no allocation system will prevent that! Only flows in excess of the minimum are available to be extracted. Some of those extractable flows (maybe all) can be traded.
There’s a huge issue of the initial allocation – either grandfathering existing inefficient uses or allocating new rights based on a combination of ability to pay and the public interest. Of course, these competing interests will do their best to screw the market from the start by using either their financial resources or political clout, which will guarantee the outcome will be suboptimal. (Look at how the emissions trading scheme has grandfathered many existing allocations and protected current practices with no regard to whether they do any damage for an example of how that can be done badly.)
It would be a brave government that would start from scratch. But they could do something that creates a hierarchy of uses, allocates flow to satisfy them, and let certain flows be traded by commercial interests. For instance, a hierarchy could have a minimum ecological protection (sufficient flow to maintain the basic ecology of the waterway) as its prime allocation, followed by commercial uses, with recreational uses the least important. (I can already hear the howls of outrage from the anglers and kayakers over the order of the last two in that list.) Commercial users could trade their allocations to whoever would pay the most to whoever would sell. Recreational users (common right holders) miss out first when flows drop because they have no rights to demand water flows to satisfy their desires, commercial users (private right holders) forgo their allocation rights on a pro rate basis as flows drop below the maximum commercial allocation level, and then stop extraction completely when flows reach the minimum level to maintain life in the waterway. Commercial users don’t have to be irrigators; a commercial recreation company, such as a rafting company, could buy rights and not extract the water, but I don’t know how they would feel about the other recreational free riders using the water they paid to leave in the river.
I guess a key point is that, in the short term, no allocation system is going to give the optimal outcome (even totally free markets take time to find an efficient point), and the main reason people want a different allocation method is because the current one is suboptimal. If we had an allocation system that worked well, e.g. a Pareto optimal allocation (where you cannot make someone better off without making someone else worse off) that also gave the desired social or environmental outcomes, there would be limited likelihood of change succeeding.
In the meantime we have largely a technical-political solution, where allocation is based on a combination of expert assessment and politically influenced policy making. By trying balance all competing interests, it ensures most people in the market are unhappy with the allocation.