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10 Potential Policy Response - The Allocation and Use 'Kete'

The water allocation project team has identified a number of potential policy responses that may improve the current allocation and use system. These responses have been referred to as 'components' to reflect that any policy response will need to be woven together from a number of distinct strands, which strengthen each other as they are joined to form a smooth and strong final package. They are presented here as separate entities and are packaged in the next section.

10.1 Component 1: Strengthen water planning processes

10.1.1 Description

This component seeks to strengthen water planning processes. Government might take different levels of action, ranging from legislative change to providing assistance to facilitate greater and more effective use of the planning processes provided for under the RMA. Options within this component include:

  • legislative change to make plans compulsory and/or to authorise and emphasise their allocation role [Changes being considered in the RMA review are expected to assist this option.]
  • a National Policy Statement specifying minimum requirements of plans to give a greater level of direction and consistency
  • development of guidelines on plan preparation and what 'good' plans should contain
  • establishing a network of water planners and/or a mobile team of specialist planning advisers.

Were the mandatory/guidance options adopted these might be complemented by the suggested support/capacity building initiatives, with this more likely to realise the potential for improving the quality of planning.

10.1.2 Benefits

The process of making regional policy statements and water plans should provide the context for the necessary strategic overview to water allocation decisions and for providing for both protection of instream values and abstractive uses. While the vast majority of councils do have or have notified their intention to have a water plan, many of the present plans do not deal with some important issues, particularly the strategic overview.

It is possible that over time there will be a significant improvement in the quality of planning processes, including strategic-level thinking. This component would provide the government with greater certainty about the timing and extent to which this will occur.

10.1.3 Risks

There is limited risk to this approach, with most councils already moving in this direction. The extent to which central government action, especially the specification of mandatory plans, will lead to the development of quality plans will depend on resourcing and capacity issues within regional councils. Some of the identified options are intended to address these constraints. Water planning processes can also involve sensitivity at the local level, reflecting their strategic nature and the diversity of community interests in water.

10.2 Component 2: Set allocation limits

10.2.1 Description

This component involves encouraging and facilitating or requiring the setting of allocation limits for water bodies which are approaching full allocation or where there are significant instream values. Such limits specify how much water can be allocated (or by how much the flow of a river can be modified), ensuring that instream values are adequately provided for and robustly protected in the first instance. This component would also facilitate the setting of Treaty allocations to ensure that sufficient water is allocated to local iwi/hapū.

The policy response might range through varying degrees, from facilitating regional council processes to making allocation limits mandatory. For example, guidance might be provided on setting allocation limits and managing clawback situations. A more direct role for central government might take the form of:

  • a National Environmental Standard that sets default allocation limits to be used when councils do not set one, or
  • a National Policy Statement requiring the setting of allocation limits once the amount or proportion of abstracted water exceeds a specified level.

Further analysis and consultation is required on these options with each involving different levels of complexity and separate implementation issues and risks, which will generally be greater for the mandatory approaches.

10.2.2 Benefits

An allocation limit specifies how much water can be allocated (or by how much the flow of a river can be modified). It clearly states the availability of water (temporally and spatially) for abstraction, diversion or damming. It provides more robust protection of instream values compared to the current practice of setting minimum flows and in the case of rivers has the environmental advantage of reflecting the natural variation in river flow and minimising flat lining. The stronger protection of instream values provided through an allocation limit may also reduce reliance on water conservation orders. Further, allocation limits enhance certainty by providing clarity to all interests (including instream and future development) about the availability of water. Applicants will know where they stand when making an application or considering a development that requires the further allocation of water.

10.2.3 Risks

The process of setting allocation limits is likely to involve additional administrative costs for regional councils because of the need to gather and analyse more scientific information to support decision making, and to undertake more extensive consultation. The setting of such limits can also be controversial because of the need to explicitly establish a balance between different values and interests in the freshwater. The Waitaki experience illustrates that such decisions are very difficult and can impact greatly on the local community.

10.3 Component 3: Improve Māori participation and engagement

10.3.1 Description

This component seeks to address current and perceived barriers to meaningful Māori participation and engagement in management and decision-making around water allocation and use, given that water is a resource of great spiritual, cultural, and economic significance to Māori. Māori seek an allocation system that recognises their interests in water, and offers fair and equitable access to water resources.

A number of possible options for strengthening Māori involvement have been identified. These are of two broad types:

  • improving capacity, resourcing and relationships to enable current processes to work better, or
  • making legislative changes to clarify or strengthen the obligations of local authorities to involve Māori in decision-making.

A wide range of options is suggested, to allow for a flexible framework enabling local circumstances and existing relationships to be taken into account. As with other components in this paper, most of these options can be combined to form a more complete package.

Specific options within this component include: [Many of these options are currently being explored further through the RMA review and the foreshore and seabed policy development process.]

  • capacity building for Māori (funding, training, best practice guidance, etc) to allow Māori organisations and landowners to improve understanding of local government processes and resource management skills (including development of effective iwi planning documents), and develop effective working relationships with local and central government
  • capacity building for councils (funding, training for elected members and staff, best practice guidance, establishment of networks, etc) to assist local authorities to understand Māori resource management perspectives and the Treaty of Waitangi, and to develop effective working relationships
  • facilitation of improved relationships (best practice guidelines on developing formal agreements, funding for joint projects, etc)
  • greater Māori input into planning provisions - improve effectiveness of iwi management plans and other iwi planning documents through capacity building and training or greater legislative status, Māori involvement in allocation written into regional water plans, central government direction on appropriate levels of Māori involvement in planning, etc
  • making local authorities more accountable for their performance in relation to Māori under the RMA - perhaps by greater alignment with Local Government Act audits, or through a new monitoring or Ombudsman process
  • amendments to the RMA (eg, sections 33 and 34) to encourage greater co-management of water resources.

10.3.2 Benefits

Māori involvement at higher levels of planning will make sustainable development planning more robust, especially in relation to identifying and balancing cultural values in water allocation - although Māori involvement will also bring broader perspectives to social/ economic/environmental issues and help to determine the nature of highest values. This will increase the flow of information to councils and hence aid in decision making. Wider Māori involvement may also make individual allocation decisions (ie, consent hearings) less contentious.

Increased and meaningful Māori participation in water planning and allocation decision-making may, by strengthening relationships and increasing understanding, assist in managing risks around any changes to arrangements for water allocation and use.

10.3.3 Risks

Capacity and education issues will require investment of time, money and planning, and may require significant shifts in relationships between local and central government and Māori that will be difficult to achieve in the short term.

Greater involvement of Māori in planning and decision-making may create a perception of special treatment. This could be managed via robust consultation and open communication with all stakeholders.

10.4 Component 4: Strengthen protection of instream values

10.4.1 Description

Under the existing system, parties interested in water remaining in its natural state for either environmental, cultural, recreational, landscape or economic reasons (eg, tourist operators) have their interests provided for via instream provisions in plans or water conservation orders and conditions on resource consents. [In this context hydroelectric generation would not be classified as an instream use.] Current practice, however, is to limit protection of instream values to environmental factors such as the setting of minimum flows.

There is a view amongst many instream stakeholders that the current system does not adequately protect these values. They consider that they are having their 'right' (ie, the amount of water instream) continually reduced without compensation and that they have to expend considerable resources representing their views on a consent by consent basis. Applications for water conservation orders have in part been motivated by such concerns.

It can be expected that setting allocation limits would go some way to addressing these concerns. Other initiatives could include:

  • modification of the nature of water permits, for example:
    • allowing consents to be granted to instream users
    • shortening the maximum consent term and increasing ability to review consent conditions
    • changes to the conditions attached to permits so that they are linked to a percentage of flow
  • National Environmental Standards on what constitutes adequate instream protection by river type and instream value (which would tend to cover quantity and quality in combination)
  • initiatives to encourage or require greater use of mitigation to protect instream values and/or facilitate participation of instream interests in development/management of mitigation options, for example:
    • requiring greater recognition of mitigation and ongoing relationships with instream interests as part of plans and resource consents
    • encouraging innovative mitigation thinking
    • increasing the use of trusts (for example), where statutory agencies and interest groups have an ongoing role in monitoring, investigations and mitigation in the catchment
    • applying mandatory financial contributions for mitigation or extending application of s. 36 charges or specifying mitigation requirements in plans
  • encouraging greater uptake of adaptive management principles.

10.4.2 Benefits

The strengthening of instream values will provide additional certainty for both instream concerns and direct users of water. Additional certainty and greater protection of instream values may lessen the need for the application of water conservation orders and demands for additional compensation where rights are seen as being eroded.

10.4.3 Risks

This range of initiatives is diverse in nature and involves a variety of different issues, impacts and implementation considerations, which need further investigation. For example, mitigation is a relatively well-established practice for large users (eg, in the electricity generation sector) but is less so for small takes which cumulatively can have significant impacts on instream values. The provision of consents for instream users would in comparison represent a major change to the structure of existing allocation processes.

Existing or potential permit holders may have concerns about the cost impacts of any additional mitigation requirements and the implications for the amount of water available for abstraction, depending on the specific approach adopted.

10.5 Component 5: Modify first-in first-served allocation system using regulatory-based approaches

10.5.1 Description

This component involves strengthening administrative processes for the allocation of abstracted water with the objective of increasing the likelihood that water is allocated and reallocated to its most valued use. It is intended to overcome the first-in first- served basis of allocation and may involve the following elements:

  • a requirement for regional councils to develop criteria to guide decision making on the allocation of abstracted water
  • a mechanism that formalises a waiting list for those interested in abstracting water
  • allowing applications for resource consents to be heard on a comparative basis.

It is envisaged that the criteria would guide both strategic and individual decisions on water allocation. The process would potentially enable councils:

  • to set water aside in anticipation of a higher environmental, social, cultural or economic value in the future [In the meantime, permits for the abstraction of this water might be granted for a short duration.]
  • to better manage situations where a number of resource consents for a single resource are applied for and exceed the amount of water still to be allocated (as occurred in the Waitaki)
  • to consider together the renewal of existing permits and applications for new ones in situations where all resource consents expire in a catchment at one time.

The criteria might also be used to guide decisions on how any reduction in total take or increase in the frequency of cut backs (to protect environmental values) is to be distributed among permit holders; and how any water freed up as a result of revisions to allocation limits or because a permit has been relinquished is to be reallocated. The development of criteria could be linked to the long-term community planning process under the Local Government Act to facilitate full community involvement in such decisions.

10.5.2 Benefits

The move away from the first-in first-served system will give regional councils a new tool allowing the comparative assessment of applications. Where water bodies move towards being fully allocated there will be increased competition between uses and non-uses of water. Comparative assessment allows this to be taken into account so the most appropriate allocations (including instream) can be made for any given local and regional situation. It is a more equitable system than first-in first-served and enables more holistic decision making.

10.5.3 Risks

Further analysis and consultation is required on the specific nature and role of the criteria, including matters which councils should have regard to in developing them. The process of establishing criteria would need to involve community consultation and may give rise to controversy, reflecting the competing interests of current and future permit holders.

The extent to which this proposal would in practice ensure that water is allocated to its highest environmental, social, cultural or economic value over time is uncertain. While the proposal would allow councils to consider competing productive uses for freshwater in making allocation decisions, the key constraint is the quality of information about the value of current and future uses that can be gathered centrally to guide such administrative judgements and the capacity for administrative decision making to respond to a dynamic environment. While criteria may be modified over time, it is likely that this process will involve delays given the need to consult and reach agreement between competing interests. Further, the extent to which this proposal might contribute to desirable reallocation of water over time will depend, in part, on the duration of water permits - the longer the time period, the more limited the opportunity for allocation decisions to be reviewed.

10.6 Component 6: Modify first-in first-served allocation system using market-based approaches

10.6.1 Description

This component involves the use of market-oriented instruments, such as a tender, auction or ballot to allocate water remaining available for abstraction. These mechanisms might operate either at the broad level or more narrowly within allocations to particular uses, for example irrigation.

Tendering and auction arrangements require participants to explicitly identify the value they are prepared to pay for the right and rights are allocated in order of value. Auctions and tenders can operate according to different sets of rules relating to secrecy of bids and to the level of payment that successful bidders are required to make. For example, successful bidders may be required to pay the value of their bid/tender (first price arrangement) or the value of highest unsuccessful bid (second price arrangement). Auction and tender arrangements have been used for the allocation of radio spectrum in New Zealand. Each unit of the resource can be allocated separately or a parallel process can be run to ensure optimal combinations can be achieved and comparable prices are set.

Balloting involves the making of allocations on a random basis, and can include a requirement for successful applicants to make a pre-determined payment for the resource. Balloting is most appropriately used where potential users value the resource similarly and where it is difficult to differentiate between applicants.

Under any of these approaches criteria can be set for eligibility to enter the process in order to achieve other planning objectives or to demonstrate that the applicant is capable of developing the resource or meeting conditions on use. The trade-off is reduced potential benefits from allocation due to less competition for the resource and a narrower range of potential uses.

Market instruments for allocation can work most effectively when combined with good arrangements for post-allocation transfers and an appropriate registry system, but neither is dependent on the other. These processes might be used to reallocate water on the expiration of existing permits.

10.6.2 Benefits

These mechanisms allow the allocation of water other than on a first-in first-served basis and avoid the need for central or local government to make administrative judgements about the most valued uses of water and collect detailed information to support this decision making process.

Tender and auction arrangements provide a relatively low cost mechanism for eliciting accurate information on the value potential users attach to a resource, providing an effective means for identifying the most valued uses of water available for abstraction. The valuations placed by bidders, and thus the pattern of allocation, will however depend on the quality of information and science available (publicly and privately) as well as the detailed specification of the access right, such as duration, certainty as to the availability of water, scope to make transfers and the arrangements on expiry. A by-product of this allocation mechanism could be the payment of a return to the community.

10.6.3 Risks

Tender and auction arrangements do not allow for issues of equity of access or for wider values, such as cultural considerations, to be taken into account in the allocation process other than in initial eligibility. There may also be concerns that water available for abstraction could be controlled by a few big players. These risks can be managed through the specification of tender/auction/ballot rules and the general framework of competition policy under the Commerce Act.

Concern about certainty for existing users is a distinct issue. Addressing this would require either some form of priority for existing users on expiry (combined with or instead of the above processes) and/or longer terms.

To the extent that these arrangements entail payment for access to the resource, perceptions of 'privatisation' of water may arise. This may carry particular risks for Treaty of Waitangi relationships between the Crown and Māori, as well as raising concerns in the broader community. These risks can be managed by open consultation to increase understanding of the instruments, and by more effective Māori engagement.

10.7 Component 7: Introduce measures to improve technical efficiency in the use of water

10.7.1 Description

This component focuses solely on improvements in the technical efficiency of water use. Options within this component include:

  • making water meters compulsory
  • allowing charges [Under s. 36 of the RMA, charges may be made to resource consent holders to cover costs of council functions under s. 35, which include information gathering and monitoring.] to be made on a volumetric basis, possibly with rebates on the amount of water saved.
  • separate take and use consents with take consents of limited duration - the result is that consent-holders are guaranteed some water long-term but regulatory reviews for purposes of efficiency are more frequent
  • providing an efficiency diagnostic service (which could be at the local, regional or national level)
  • requiring seasonal volumes to be set via resource consents
  • industry efficiency standards, codes of practice or a certification system
  • providing financial assistance for water users to shift to more efficient technology
  • public education and measures to encourage efficiency in use of domestic water (particularly related to use of drinking-quality water).

Some of the options under this component are currently available to councils, but they could be required or further encouraged nationally. This component will mostly affect existing users as new irrigation distribution systems (for example) generally have higher operating efficiencies and are often more flexible. To improve efficiency requires improved distribution designs, improved management by measurement and motivation to change. There are very real practical and cost problems with some of the older systems. Metering is also costly and will take time to implement.

10.7.2 Benefits

Improved efficiency in the use of water potentially frees up 'extra' water for instream values or further abstractive uses. Efficiency measures also allow users to consider the direct implications of water use and how their water use impacts on others and the availability of water. Additionally, significant energy and cost savings have been measured following water use efficiency gains in some pumped irrigation systems.

10.7.3 Risks

Water users may have concerns about measures that require significant changes to their water use practices or involve additional costs. There may be implications for the viability of existing businesses, depending on the timeframes for compliance and whether there is any assistance available for upgrades. This represents a high risk in areas where there are either a large number of small inefficient users or a small number of large users. To compound this problem, there may also be a reluctant uptake of voluntary measures and transitional assistance schemes may need to be set up until efficiency measures are in place.

10.8 Component 8: Establish a resource rental for water

10.8.1 Description

This component involves permit holders being required to pay a resource rental in return for access to freshwater. The purpose of a resource rental is to:

  • provide a return to the community by extracting some, or all, of the value conferred on users from granting exclusive access to a community resource, and
  • ensure that the value of scarce resources is reflected in decisions on their use.

Rentals may take the form of a predetermined dollar payment per unit of the resource, with the level intended to capture a given percentage of the value of the resource. Where, however, the resource is not traded it is difficult to set resource rentals with confidence. An alternative approach is to require permit holders to annually return a given fraction of their access right to be potentially allocated by the community (eg, through a community trust), with this avoiding the need to make explicit valuations. [Where there is transferability and a market is well established, permit holders might alternatively be able to make an equivalent payment, with this determined by the market price.] In either case the level of the rental could be set by administrative or competitive processes.

Issues which would need to be resolved are whether the rental would be levied by the Crown or councils and its appropriate level.

10.8.2 Benefits

The requirement to pay a resource rental may make it publicly more acceptable to grant private access to a community resource. A resource rental, by increasing the cost of access to a resource can (at the margin) increase incentives for technical efficiency in the use of water, with this depending on how users respond to the increase in cost of access.

10.8.3 Risks

To the extent that water has already been allocated under existing permits, permit holders may well have paid for the right to access the resource through land prices. That is the value of exclusive access to a community resource may already have been captured by others so existing users could be effectively paying twice.

The imposition of a resource rental would therefore be more justified in the context of newly allocated water or of reforms where existing rights were strengthened, conferring additional value. Were, however, a rental to apply only to new permits there might be a perception of apparent inequity.

As with Component 6, an arrangement entailing payment for access to the resource may raise perceptions of 'privatisation' of water, both among Māori (with regard to Treaty issues) and in the broader community. The level of that risk may depend on the use to which the rental revenue is put.

10.9 Component 9: Enhance transferability of water permits

10.9.1 Description

The transfer of water permits is currently available under the Resource Management Act but there is little appreciation of the scope for transfer among permit holders, and the amount of trade has been limited. [Except where the transfer occurs in the wider context of a change in ownership of land.] Given that a number of water bodies have only recently been recognised as being fully allocated, however, the limited level of trading is not surprising.

Options within this component seek to encourage regional councils to consider water transfers and to remove the barriers to, or reduce the transaction costs involved in such transfers. They include:

  • amendments to the RMA which would allow temporary transfer of consents [Changes being considered in the RMA review may provide for this.]
  • working with councils to encourage greater consideration of transferability, and to establish appropriate procedures for transfers (including defining areas within which transfer can occur)
  • working with regional councils to facilitate the establishment of a standard registry system recording permit holders and conditions etc (including abstraction volume etc) [This would facilitate information flows in the transfer market.]
  • providing a legal means to register an interest in obtaining water in a catchment where no more is being allocated
  • facilitating the establishment of a national or regional water market.

More far-reaching changes might involve significant changes to the nature of property rights attached to water permits to facilitate transferability. Were strengthening of the property right contained in water permits to be considered, it would be necessary to address appropriate processes surrounding the transition to the new set of rights, including how existing rights should be treated and the potential role for tendering in the distribution of currently unallocated fresh water.

10.9.2 Benefits

Enhancing the transferability of water permits would potentially lead to an improved overall system of water allocation and use. To the extent that trading facilitates the reallocation of water resources, the first-in first-served approach to making initial allocations would be of less concern. Similarly, where initial administrative allocations turn out not to be the highest valued use, trading potentially allows this to be corrected over time reducing the need for councils to review allocations. In turn this would potentially provide greater certainty for investors, with reviews of allocations primarily driven by environmental factors rather than the need to provide for other uses. The emergence of a price for water would also provide incentives for technical efficiency in use.

10.9.3 Risks

Barriers to improved transferability have been identified as including:

  • negative perceptions by permit holders and others (including Māori), and a view that water should be linked to land
  • the small size of many New Zealand catchments limiting the potential net benefits in terms of gains from better use of water as compared to the transaction costs involved in facilitating increased transferability
  • the nature and duration of water permits.

In the context of increased transferability it would be important that arrangements appropriately:

  • manage potential environmental impacts. With enhanced transferability 'sleeper permits' may be activated leading to a higher level of abstraction than has occurred in the past. In this context it is desirable that Component 4 also forms part of any package providing for initiatives for improved transferability
  • provide protection to third parties (eg, downstream users), especially where as a result of a trade a given gross abstraction involves a significantly different return flow
  • provide protection for the interests of freehold owners of leased land, so that land was not left devalued or unusable on the expiry of a lease because the lessee had permanently alienated all water permits formerly used on that land.

The options involving more far-reaching changes may raise sensitivities among Māori and the broader community to the extent that they are perceived as privatising freshwater. While the introduction of a resource rental (Component 8) may address this to some degree, where water is already allocated under existing permits much of the value of any new right would already have been transferred to permit holders, with many of them having paid for this value in the price paid for land.

There is a risk that, while this approach might facilitate the transfer of water to most valued economic uses, it would not necessarily facilitate transfer of water to enhance social, cultural and environmental values (unless used in conjunction with other components such as improved strategic planning and/or the setting of allocation criteria). More limited measures to enhance transferability which offer increased provision for temporary or partial rather than permanent transfers, or do not strengthen the nature of the right contained in water permits, are less likely to give rise to risks associated with perceived privatisation in terms of either public sensitivity or the Treaty of Waitangi.

10.10 Component 10: Increase certainty of rights specified in water permits

10.10.1 Description

This component involves exploring changes to the way water permits specify rights and might include:

  • making consents more secure and restricting the ability to review conditions
  • changes to the duration of consents, including extending the maximum time for issuing consents
  • introducing policy (at regional or national level) about protection of the interests of existing users rights. [Changes being considered in the RMA review may provide for this.]

10.10.2 Benefits

The strengthening of rights would provide for more certainty over the medium to long-term for the consent holder. While this would secure investment in the relevant catchment and provides certainty for potential new entrants into the market, the extent to which this would impact on investment is unclear. There is no strong evidence that in practice current processes are a significant barrier to investment. [MAF Policy & Ministry for the Environment (2003): Property Rights in Water, A Review of Stakeholders' Understanding and Behaviour, report prepared by Harris Consulting & The AgriBusiness Group.] The situation might, however, change rapidly if a council did not renew a permit in the context of managing a fully allocated waterbody and competition for available water.

10.10.3 Risks

Unless significantly more reallocation by trading occurs, there is a risk that measures increasing the duration of consents or the likelihood of renewal would lock water resources into lower value and/or inefficient uses. Such measures also make it more difficult to manage adverse effects and environmental bottom lines, especially in response to changes in the environment (eg, future shifts in rainfall patterns). Protection of instream values by means of water conservation orders may be constrained by 'locking in' consents for longer terms. Changes perceived as providing users with firmer rights may involve public sensitivity and raise concerns about Treaty of Waitangi issues.


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