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11 Policy Packages to Improve the Water Allocation and Use System

Ten possible components for reform have been explored in a preliminary way in this paper. Many of the components are mutually supportive while others present distinctly different approaches to addressing aspects of water allocation and use. It is expected that final recommendations for change would be composed of a number of these components. Officials consider that all ten components should remain as viable and open for further analysis and consultation.

The components may be packaged taking account of the differing underlying philosophies. These can be described as two main groups of approaches:

  • regulatory and planning approaches
  • market-based approaches.

While these may be seen as opposite ends of the policy spectrum, the spectrum is best viewed as a set of scales. Decision-makers can choose to be at either end of the scale or somewhere in between, using a mix of both types of approach. It is often the case that a mix of approaches provides a mutually supportive policy atmosphere while enabling better functioning of tools across the spectrum.

The water allocation team has put together four packages that cover a range of positions along the scale. The packages begin with a 'basic essentials' package that includes components that should be undertaken as part of any policy reform. Two packages are then presented which sit towards the 'regulation/planning' and 'market instruments' ends of the policy spectrum. Finally, a package is presented that illustrates how the regulation and market-based tools might be mixed.

These instruments can be applied at the local, regional or national levels as well, adding a further dimension to the choice of policy approach. The degree of 'depth' possible will depend upon the specific option chosen within each component and will be examined in more detail during the consultation and evaluation phase of this work. It should be noted that regardless of the position on the policy spectrum that any approach will have information and capability requirements in order to be designed and implemented effectively.

11.1 Basic essentials package

The basic essentials package consists of three components:

  • strengthening water planning processes
  • setting allocation limits
  • improving Māori participation and engagement in process.

Officials believe that these three components should be included in any proposals for change and hence form a core around which the other packages are based. This package is extending and strengthening the current (status quo) approach and offers the potential for minimum change in terms of process and risk. It is likely that these three components can be implemented in a relatively short timeframe (depending on the specific option chosen) - they represent an extension and refinement of current practice rather than a significant change in current practice.

In terms of the team's definition of a 'good' allocation process, the basic essentials package:

  • will encourage adequate processes to enable sound decisions to be made about how much water should remain in water bodies and how much can be abstracted
  • will, in a very limited way, encourage processes that are more likely to lead to the allocation, but not facilitate the reallocation, of abstracted water to the highest environmental, social, cultural and economic values
  • will encourage, to a limited degree,systems that encourage technical efficiency in the use of water.

The package, on the whole, is relatively low risk to implement. The three components are not seen as being controversial and acceptance from stakeholders will not be difficult to achieve. A robust consultation process is essential to ensure that the 'right' specific options within each component are implemented in the most appropriate way.

The higher risk in the context of this package is that some specific issues identified as problems are not addressed (eg, the problems with reallocation and first-in, first-served). This situation is also likely to worsen over time potentially resulting in more difficult or costly solutions in the future.

11.2 Regulatory and planning package

The regulatory and planning package consists of the basic essentials plus three additional components:

  • strengthening protection of instream rights
  • modifying the first-in first-served system for water allocation using regulatory-based approaches
  • introducing measures to improve technical efficiency in the use of water.

In the case of the former two components, this may require legislative change. The latter component can be implemented under current legislation and may involve reviewing and updating consent conditions - a process in itself which may be controversial for some water users.

This package focuses on ensuring that the environmental and other instream baselines are protected. Once this is achieved then there is opportunity for consents to be evaluated using a modified system (such as comparative assessment) and to specify efficient use within this process, thus giving a greater scope for the community to set broad strategic priorities for water use (and hence linking directly to the Long-Term Council Community Plan process). The increasingly efficient use of water should then enable further water to be entered back into the system for either instream or other uses. There is no modification to the transferability provisions, which would remain as currently defined.

In terms of the team's definition of a 'good' allocation process, the regulatory and planning package:

  • will encourage adequate processes to enable sound decisions to be made about how much water should remain in water bodies and how much can be abstracted
  • will, in a limited way, encourage processes that are more likely to lead to the allocation and facilitate the reallocation of abstracted water to the highest environmental, social, cultural and economic values
  • will providesystems that encourage technical efficiency in the use of water.

This package has components that range from low to medium risk. The most controversial aspect is likely to be initiatives to strengthen the protection of instream rights. While this is likely to be welcomed by stakeholders with a strong interest in environmental outcomes, some water users will be concerned that these changes will reduce the amount of water available for abstraction and increase the costs of accessing this water. Consultation will assist in managing these risks by enabling greater understanding of the concerns of both groups.

Existing users may perceive particular threats to their rights especially where there may be more water allocated for instream uses and the consent evaluation process may have been modified. With this in mind, there may be a need for a transitional period to ensure there is certainty for both instream and abstractive users of water. This will depend, to a large degree, on the specific options chosen within these components and appropriate risk mitigation will need to be taken in each case.

Although this package covers many of the problems highlighted in this paper, there are key areas still to be addressed, such as reallocation. The lack of measures within this package to improve arrangements for the transferability of water poses a high risk for the long-term ability of this package to deliver the required outcomes.

11.3 Market instruments package

The market instruments package consists of the basic essentials plus five additional components:

  • modifying first-in first-served using market-based approaches
  • enhancing transferability of water permits
  • emergence, as a result of water transfers, of financial incentives to improve technical efficiency in the use of water
  • establishing a resource rental for water
  • increasing certainty in specification of rights in water permits.

This package is focused on introducing flexibility into the process of allocation and reallocation of abstracted water, with this set in the context of improved planning processes and the setting of allocation limits to provide appropriately for the protection of instream values. The combination of measures to provide greater certainty of rights and to enhance transferability are intended to be mutually supportive, mitigating the risk that any strengthening of rights would impact negatively on the allocation and use system. The emergence of a market value for water as a result of more widespread use of transfers would create a financial incentive to increase technical efficiency.

The need for a resource rental for water will depend upon the success of the other components set out above. It may be included as part of this package to address public sensitivities by providing a return to the community from granting private access to a community resource and reinforcing incentives for efficient use. With this in mind, this component may be included in any package, but is characterised as a market tool for the purposes of this paper.

Most aspects of the transferability component can be accommodated without legislative changes and, indeed, some transferability provisions are already available to regional councils. A resource rental and alteration to rights are likely to require some form of legislative change.

In terms of the team's definition of a 'good' allocation process, the market instruments package:

  • will encourage adequate processes to enable sound decisions to be made about how much water should remain in water bodies and how much can be abstracted
  • will, to some degree, encourageprocesses that are more likely to lead to the allocation and facilitate the reallocation of abstracted water to the highest environmental, social, cultural and economic values
  • will providesystems that encourage technical efficiency in the use of water.

On the whole, this package is a medium to high risk one. There are potential public sensitivities and Treaty of Waitangi concerns, as the suggested measures may blur the distinction between rights to use water and ownership of the resource, leading to the perception that freshwater is being privatised and bringing the question of the Crown's sole right to use and allocate water into sharper focus.

These risks (and the potential costs to both the Crown and Māori), while significant, can be managed. One possible risk management approach is a process which seeks to engage Māori on broader water allocation issues in a manner which gives proper weight to the Crown-Māori relationship, and encourages the exploration of solutions which address the interests of all parties. It is also likely that it will be easier to resolve these issues now rather than later, given that the complexities of water allocation will increase over time as the water resource comes under more and more pressure and the value (and scarcity) of water increases.

The use of market-based approaches to allocate water between users will need careful consideration of existing users' rights. It may be more appropriate to ensure that any water that becomes newly available is allocated using market means rather than using these means for a substantial overhaul and reallocation of existing water use.

Although the focus in this paper has been on value in its widest sense, this package may be perceived by stakeholders as one that focuses attention purely on the economic value of water use. This perception may also be compounded to the extent that changes in the way rights are specified in water permits are perceived to, or actually, strengthen current users' rights. However this will be balanced out by the 'basic' components which aim to ensure that instream values are protected. There is also potential for incorporation of some of the elements of Component 4 (eg, setting conditions to link permits to a percentage of flow) to address these concerns. Extensive consultation and information would be required prior to this package being implemented.

11.4 Illustrative mixed package

Officials have developed an illustrative package that uses elements from both regulation and market policy tools and provides an example of how they might be combined. This package consists of the basic essentials plus three additional components:

  • modifying the first-in first-served system for water allocation using regulatory approaches
  • introducing measures to improve technical efficiency in the use of water
  • enhancing transferability of water permits.

Under this package, a modified system for allocation will ensure that the instream values are protected fully, whilst introducing flexibility into the system via enhanced transferability. The modification of first-in, first-served ensures that any competing uses can be compared with the objective that water is allocated to uses (including instream uses) with the highest social, cultural, environmental and economic values. Increased transferability provides a mechanism for overcoming any problems in initial allocation and allows ongoing reallocation over time.

In terms of the team's definition of a 'good' allocation process, the suggested package:

  • will encourage adequate processes to enable sound decisions to be made about how much water should remain in water bodies and how much can be abstracted
  • will encourageprocesses that are more likely to lead to the allocation and facilitate the reallocation of abstracted water to the highest environmental, social, cultural and economic values
  • will providesystems that encourage technical efficiency in the use of water.

While some components of this package are fairly easy to implement and relatively low risk, other components, such as modifying the first-in, first-served system, will require legislative change. In this respect, the risks around this package are mixed, but may be mitigated via a robust consultation process which increases understanding of the implications and potential uses of various measures.

This package does not address any of the 'rights' issues that have been identified throughout this paper.


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