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6. Costs and Benefits of the Proposed NES

A preliminary assessment of the costs and benefits of the proposed NES has been prepared by independent consultants. The preliminary cost–benefit analysis shows that the nationwide impacts are expected to be positive, whereas site-specific impacts are unable to be quantified at this preliminary stage.

The complete analysis will be reported in two parts:

  1. a preliminary cost-benefit analysis – an initial scoping assessment, presented in summary here (the full preliminary cost–benefit analysis report, including information sources)
  2. the full cost-benefit analysis – a fuller quantification will be completed after analysis of the consultation responses and formulation of a final policy position, if the option of an NES is pursued.

A summary of the potential costs and benefits of the proposed NES is shown in table 4, and a description of these impacts is given below.

To ensure future impacts are compared appropriately against current impacts, future impacts quantified in monetary terms have been discounted. The rate used for discounting future impacts in this analysis is 8 per cent. The time period used for the analysis is 20 years.

Impacts Costs Benefits
Potential nationwide impacts
(Note: Time period used is 20 years. The value of impacts accruing in future years has been discounted at 8 per cent.
  • One-off implementation costs for central government: $120,000
  • One-off implementation costs for local authorities: $1 million
  • One-off implementation costs for forestry sector: < $100,000
  • Avoided plan changes for councils: $1 million
  • Avoided plan-change submission costs for sector and other stakeholders: $0.5 million
  • Avoided research, interpretation and briefing costs to the forestry sector: $2.5 million
  • Reduced lobbying by the forest sector: $10,000
  • Avoided enforcement and remediation costs from increased compliance: total unknown ($5,000–$250,000 per breach)
  • Increased certainty for the sector: total unknown (reduced regulatory risk may increase forestry investment)
  • Improved environmental outcomes: total unknown (carbon capture benefits $290,000 per 100 ha, Kyoto Protocol target met).
Potential nationwide total $1.22 million $ 4 million +
Potential site-specific impacts In locations with more lenient rules imposed by the NES:
  • a reduction in good environmental outcomes: un-quantified
In locations with more stringent rules imposed by the NES:
  • improved environmental outcomes: un-quantified
In locations with more stringent rules imposed by the NES:
  • increased consent application costs for sector: cost of application (eg, $5,000 to $20,000) x expected number of additional consents
  • increased consent-processing costs for councils: cost of processing (eg, $2,000) x expected number of additional consents
  • increased monitoring costs for councils or sector: cost of monitoring (eg, $500 to $5,000) x expected number of additional monitored activities
  • increased dispute costs: dispute costs (eg, $20,000 to $100,000) x expected number of additional disputes
  • increased delays for sector: unquantifiable, but potentially $250,000 per 100 ha affected
  • increased costs for some forestry activities (eg, culvert or setback requirements): reduced cost per activity x expected number of activities affected.
In locations with more lenient rules imposed by the NES:
  • reduced consent application costs for sector: cost of application (eg, $5,000 to $20,000) x expected number of avoided consents
  • reduced consent-processing costs for councils: cost of processing (eg, $2,000) x expected number of avoided consents
  • reduced monitoring costs for councils or sector: cost of monitoring (eg, $500 to $5,000) x expected reduction in number of monitored activities
  • reduced dispute costs: dispute costs (eg, $20,000 to $100,000) x expected number of avoided disputes
  • reduced delays for sector: unquantifiable, but potentially $250,000 per 100 ha affected
  • reduced costs for some forestry activities (eg, culverts or setback requirements): reduced cost per activity x expected number of activities affected.

6.1 Benefits on a nationwide basis

The introduction of the proposed NES would generate a number of benefits to society, including:

  • avoided plan changes for councils
  • avoided plan-change submission costs for the forestry sector
  • avoided research and interpretation costs
  • avoided enforcement and remediation costs from increased compliance
  • increased certainty for the forestry sector, leading to increased investment
  • improved environmental outcomes.

A summary of these benefits is provided below.

6.1.1 Avoided plan changes for councils

In the absence of an NES, many councils are likely to carry out periodic plan reviews and individual plan changes that would, from time to time, affect the rules governing plantation forestry activities in a particular area. These reviews and proposed amendments typically involve councils committing time and resources to investigating potential amendments, operating public consultation processes and determining what changes are to be made.

The magnitude of the council resources used for these reviews varies from council to council, depending on the nature of the plan being reviewed. Discussion with selected councils revealed that relatively simple plan changes can cost around $20,000, but that the costs of carrying out plan changes that require extensive public consultation can range from around $100,000 to $200,000. Assuming a typical plan change cost of $20,000, avoiding five plan changes a year over a 20-year period would generate a benefit in the order of $1 million in total (applying an 8 per cent discount rate to impacts in future years).

6.1.2 Avoided plan-change submission costs for the forestry sector

In response to these reviews and proposed plan changes and amendments, forestry sector participants may make submissions during the various consultation processes. The cost of preparing these submissions, including staff time, would be avoided by the introduction of an NES. In some cases these costs may be minor, say $2,000, but more typically the costs may range up to $7,000 to $10,000. In some cases the costs may be considerably higher. For example, submission costs incurred by forest owners in Canterbury who submitted on Environment Canterbury’s Natural Resources Regional Plan were around $100,000.

Assuming a typical submission cost of around $10,000, avoiding submissions on five plan changes a year over a 20-year period would generate a benefit in the order of $500,000 in total (applying an 8 per cent discount rate).

Offsetting these benefits to some extent is the fact that an NES itself may be prone to amendment over time, and there are some areas outside the NES’s scope, or that are able to be more stringent, that will still require submissions. This could occur if new scientific research provides an improved understanding of the environmental impact of forestry activities, or if new types of forestry (eg, energy forestry) become more prevalent. Because of these possibilities, not all submission costs may be avoided by an NES.

6.1.3 Avoided research and interpretation costs for the forestry sector

Given the variability of rules between locations, as well as the inherent complexity of the current rules in many areas, an NES is likely to lead to greater consistency and certainty for the forestry sector. This would in turn reduce the costs of forestry operations, as operators would no longer need to research, interpret and apply different rules for forestry operations in different districts and regions.

This process can be costly, as employees must be fully briefed and trained regarding the rules applicable for each operation. In some cases it may even be necessary for employees to be briefed about different sets of rules that apply to the same forest if a single forest spans two districts or regions. Based on estimates provided by forestry sector participants, an NES may lead to an annual reduction in costs equivalent to around two or three FTEs, plus some overheads, across the sector. These savings could be worth approximately $250,000 per year. Over a 20-year period this benefit would be in the order of $2.5 million in avoided costs in total (applying an 8 per cent discount rate).

6.1.4 Avoided enforcement and remediation costs

The rules governing forestry activities are occasionally breached by forestry operators. If an NES were to lead to greater consistency and simplicity, more individuals throughout the sector would have a better understanding of the rules that apply in any given location. This may result in fewer breaches overall.

These breaches can result in negative environmental impacts. As well as these impacts, any resulting enforcement action can generate costs, such as legal expenses and internal staff time for both councils and forestry operators.

Consequently, an NES would be simpler and less costly to interpret and comply with than current rules in many areas, meaning there may be fewer breaches of forestry activity rules. This could avoid some of the negative environmental and external impacts, remediation costs, enforcement costs and legal expenses that would otherwise arise under the status quo.

6.1.5 Increased certainty for the forestry sector regarding future rules

An NES could also increase certainty regarding forestry rules over time, which would reduce some of the ‘regulatory’ risks faced by forestry investments. Currently there is scope for councils to alter rules governing forestry activities in a manner that may negatively affect forest owners’ ability to obtain returns from their investments. This may occur if limitations are placed on harvesting activity, for instance. One impact of such regulatory risk is if a lender (eg, a bank) considers there is a risk that plan changes could hinder the ability for a forest to be harvested. This risk, whether real or perceived, can affect interest rates charged for loans. This in turn can negatively affect the financial viability of forestry investments.

Increased certainty in activity rules and reduced risk to forestry activities could lead to greater profitability, which would constitute a benefit of an NES. Increased returns could in turn lead to a higher level of investment in forestry than would otherwise occur, particularly in areas where uncertainty is currently high. Benefits from increased forestry investment could also include improved environmental outcomes, as described in section 6.1.6 below.

6.1.6 Improved environmental outcomes

Several of the beneficial impacts outlined above would have the effect of reducing both the regulatory risks and the costs of regulatory compliance faced by the forestry sector. This could effectively increase the returns to forestry investments, although this increase is likely to be relatively small, particularly in relation to land costs. However, if the increased certainty and reduced regulatory risk were enough to generate investment in what otherwise would be a marginal forestry investment, this could lead to a small increase in forestry compared to the status quo. Increased forestry activity could potentially generate positive environmental impacts if this avoids land being used for other types of land uses.

To the extent that an NES leads to increased compliance with forestry activity rules, if these rules are easier to interpret there may also be fewer breaches of the rules (see section 6.1.4 above). Improved environmental outcomes may also arise in areas where an NES leads to more stringent rules, although these impacts would not occur in all areas.

The environmental benefits that could arise from increased forestry and greater compliance may include:

  • improved water quality
  • increased carbon capture
  • biodiversity enhancement (see section 1.7.9).

Although it is difficult to quantify the benefits of improved water quality and biodiversity, the benefit of a given increase in carbon capture can be estimated. A decrease in New Zealand’s net greenhouse gas emissions would reduce New Zealand’s liability under the Kyoto Protocol. This analysis also assumes that when the Kyoto Protocol expires in 2012, a similar international agreement will be in place.

New plantation forests absorb approximately 800 tonnes of carbon dioxide equivalent per hectare over a rotation, but the carbon dioxide absorbed is assumed to be emitted on harvest (MAF, 2010a). Over multiple rotations, on average approximately half this amount (ie, 400 tonnes of carbon dioxide equivalent per hectare) can be assumed to be removed from the atmosphere. Based on a carbon price of $25 per tonne of carbon dioxide, every additional hectare of forestry would generate a one-off benefit of just over $4,000. Consequently, if one additional forest of around 100 hectares is created (less than 0.01% of the current total plantation forest), the one-off benefit generated would be around $400,000.

6.2 Benefits on a geographic basis

The introduction of the proposed NES would generate local benefits, but these would vary depending on location. They would include:

  • reduced resource consent costs for the forestry sector
  • reduced consent-processing costs for councils
  • reduced monitoring and data costs
  • reduced dispute costs
  • reduced delays for the forestry sector in obtaining consent
  • reduced costs for some forestry activities.

6.2.1 Reduced resource consent costs for the forestry sector

If an NES were to reduce the number of activities requiring consent, the costs imposed on the forestry sector in the course of applying for resource consents would also be reduced. The magnitude of the costs that could be avoided varies. The typical cost of internal staff time and other expenses incurred in the preparation of resource consent applications may be around $5,000, but it may range up to around $20,000. Also, typical application charges levied by councils may be in the vicinity of $1,500, although charges are often larger for more complex applications (eg, $10,000).

6.2.2 Reduced consent-processing costs for councils

If an NES were to reduce the number of activities requiring consent, the (unrecovered) administrative costs imposed on councils from processing consent applications would also be reduced. The average unrecovered administrative cost incurred by councils in relation to resource consents obtained by Telecom during its nationwide roll-out of roadside cabinets and cell sites was estimated at around $2,600 per consent. The equivalent cost for forestry activity consents could be of a similar magnitude.

6.2.3 Reduced monitoring and data costs

To the extent that certain forestry activities in some areas would no longer require resource consent, this would reduce the ability of councils to request data and other information concerning forestry operations. Any reduction in such requests may lead to a reduction in monitoring and reporting costs faced by the forestry sector. An NES also has the potential to lead to a reduction in compliance monitoring carried out by councils. These costs typically range from around $500 to $5,000.

6.2.4 Reduced dispute costs

To the extent that an NES would lead to some activities becoming permitted activities rather than requiring consent, this could reduce dispute costs associated with the resource consent process. For instance, it is likely that there would be fewer occasions when applicants would need to undertake costly appeals to obtain consents.

Also, third parties who might otherwise challenge the granting of consents would be excluded from doing so if activities were instead permitted. This would increase the certainty for the forestry sector of being able to carry out certain activities that would be permitted as opposed to requiring consent. Furthermore, in contrast to individual plan rules, an NES cannot be challenged except by a judicial review regarding the process carried out in its creation. The costs of a typical dispute may be around $10,000 to $20,000, although the cost of some disputes can be substantially higher.

6.2.5 Reduced delays for the forestry sector in obtaining consent

In the process of obtaining resource consents, forestry sector participants can occasionally be subject to delays if councils do not adhere to the appropriate deadlines. In some cases these delays can have a substantial impact on the timing of activities such as harvesting. This can occur if such delays mean that consents are not granted until non-harvesting periods have begun (eg, winter). This means that harvesting activity can be delayed until the appropriate harvesting period in the following year.

To the extent that an NES would reduce delays because fewer activities would be subject to a consent application process, this would benefit the forestry sector by increasing the flexibility regarding the timing of harvesting activity. Fewer delays and increased flexibility can provide more scope for forestry owners to take advantage of favourable log prices.

Given the volatility of these prices, the timing of harvesting can have significant impacts on the returns to forest owners. For instance, a change in prices by $5 per tonne can alter the return on a 100-hectare forest block (which could generate around 50,000 tonnes) by around $250,000.

6.2.6 Reduced costs for some forestry activities

In areas where an NES would lead to more lenient rules for certain activities, the costs of carrying out these activities may be reduced. Changes to rules, such as setback requirements, can allow more trees to be grown on a given forest block, increasing the value of forest investments.

6.3 Costs on a nationwide basis

The proposed NES would impose some costs, or negative effects, on various members of the wider society. These costs include:

  • implementation costs for central and local government
  • implementation costs for the forestry sector.

6.3.1 Implementation costs for central and local government

The introduction of an NES would require changes and impose costs on both councils and central government organisations (administrative costs). These costs would be one-off costs incurred in the transition from the status quo to an NES and are likely to apply across the country.

The implementation of an NES is likely to generate two main administrative costs:

  • costs to central government of implementation
  • costs to councils of amending plans and notifying changes.

After the current consultation process is completed, any decision to introduce an NES would generate implementation costs for central government. These would include the costs of educating stakeholders (incurred by the Ministry for the Environment); for example, from providing workshops, guidance material and erosion mapping information. The total administrative cost of workshops would be in the vicinity of $20,000, with the cost of generating guidance material estimated at around $50,000, and technical advice around $10,000. The costs of providing councils with erosion mapping information would be an estimated $40,000.

Even though not required by legislation, the introduction of an NES could also lead many councils to change their existing plans to incorporate the new rules, including changing policies and objectives where a conflict with the NES rules occurs. Work would be carried out by council practitioners interpreting the NES, determining what impact it would have on existing rules and plans, and educating staff about the new rules. External costs of this adjustment process may include obtaining legal interpretations of the NES and the costs of notifying these changes to interested parties (eg, via advertising). Based on discussions with selected councils, the total cost of this process for an individual district or regional council could range from $2,500 to around $20,000.

However, these costs could be considerably larger if councils were required to identify certain features, such as wāhi tapu, archaeological sites, wetlands or hazard areas. This could require engaging specialist expertise and carrying out a public consultation process. In this case, the costs incurred by councils could range from around $100,000 to $200,000 per council. Assuming that the majority of councils (eg, 80) incur minor implementation costs, say $5,000, and a small minority (eg, five) incur large implementation costs, say $100,000, the total cost to councils could be in the order of $1 million.

6.3.2 Implementation costs for the forestry sector

The implementation of an NES is likely to generate one-off adjustment costs for the forestry sector as it adjusts to new standardised rules. This is because any change in rules brought about by an NES would need to be interpreted and understood by both the forestry sector and by RMA practitioners. These parties would incur costs (eg, time) in interpreting and reviewing the changes brought about by an NES. However, the magnitude of these adjustment costs is likely to be relatively minor, as the majority of consent applications would be carried out by five or six large firms.

6.4 Costs on a geographical basis

The introduction of the proposed NES would generate a number of local costs, but these would vary depending on the location. They would include:

  • increased resource consent costs for the forestry sector
  • increased resource consent-processing costs for councils
  • increased monitoring costs
  • increased dispute costs
  • increased costs for the forestry sector due to delays
  • increased costs for some forestry activities.

6.4.1 Increased consent costs for the forestry sector

In areas where an NES would lead to more stringent rules (eg, if activities that were previously permitted instead required consent), ongoing costs could be generated for resource consents required for certain specified forestry activities. Any increased use of the resource consent process in these areas would generate additional costs for councils and, to a larger extent, applicants.

The resource consent application costs incurred by the forestry sector can be grouped into two types:

  • (external) council charges
  • (internal) costs of preparing consent applications.

As well as council charges for processing applications, forestry sector operators incur costs in the preparation of consent applications. These costs can include the time and expense incurred in deciphering and interpreting the relevant plans, developing applications, and planning activities that adhere to the rules within these plans. These rules – along with the structure, approach and layout of plans – often differ across districts and regions. Even within a particular area, rules that govern certain forestry activities may be contained in several different plan documents and may not be cross-referenced.

Also, plan rules are subject to change at the discretion of individual councils and can vary over time. These factors can impose substantial interpretation and planning costs on the forestry sector. These costs can arise not only in relation to carrying out the same activity across different areas, but also in carrying out the same activity within a certain area over time. By standardising these rules to a much greater degree, an NES could lead to a substantial reduction in these interpretation, preparation and planning costs.

The resource consent costs faced by the forestry sector could vary considerably depending on a number of variables, including the nature of the activity in question and the location. According to selected forestry sector participants, the typical cost of internal staff time and other expenses incurred in the preparation of resource consent applications can be around $5,000, but may range up to around $20,000 per application. Also, typical application charges levied by councils can be in the vicinity of $1,500 for simple applications, but may be significantly larger for more complex applications (eg, $10,000).

6.4.2 Increased consent costs for councils

Any increase in resource consent requirements would increase the administrative burden on affected councils. However, many of these costs are passed on to applicants in the form of consent application charges levied by councils. Consequently, it is only that portion of expenses not recovered by applicants that would constitute (net) costs to councils. The degree of cost recovery varies across councils, with some councils attempting to carry out full cost recovery whereas others do not seek to recover any application processing costs. The status of the consent also influences whether councils can directly recover costs.

Because in most cases councils attempt to recover the majority of the costs they incur in processing consent applications, the remaining, unrecovered, administrative costs are a relatively small proportion of the total consent application costs, at least in relation to charges passed on to applicants. Although figures are not available for forestry consents, the average unrecovered administrative cost incurred by councils for resource consents obtained by Telecom during its nationwide roll-out of roadside cabinets and cell sites was estimated at around $2,600 per consent application.

6.4.3 Increased monitoring costs

In addition to the costs of consent application processes, forestry operators may also face additional monitoring and information reporting costs. Activities such as water quality monitoring may be requirements of any consent provided by councils. These monitoring costs typically vary from around $500 to $5,000 per consent. Information reporting requirements can also add to administrative costs for forestry operators.

6.4.4 Increased dispute costs

Disputes regarding the consenting of forestry activities typically arise because either:

  • applicants challenge councils’ decisions if consent is not given or certain conditions on activities are imposed; or
  • third parties challenge councils’ decisions on providing consent, or certain conditions are not imposed.

The specific costs that can arise include the time spent and expenses incurred in resolving disputes (eg, preparing submissions, attending hearings, hiring legal representation, court time). These costs would be minor if a dispute were resolved quickly and informally, but may be substantial if a case is heard in the Environment Court. Councils tend to budget around $50,000 per appeal.

Given that there will be one or more other parties involved in a dispute, this suggests that the total costs imposed on all parties could exceed $100,000. In one recent case, the total dispute costs were in excess of $1 million. However, a more typical magnitude for the costs generated by a dispute may be around $10,000 to $20,000.

In areas where an NES resulted in rules that were more stringent (eg, more activities required consent), there could be greater scope for more disputes. Also, an NES that imposes rules on some forestry activities could give rise to inconsistency if different rules were to apply to the same activities when carried out for other, non-forestry, purposes. For example, earthworks carried out in the course of forestry activities could be permitted, whereas earthworks carried out for subdivision development could require consent. This inconsistency could give rise to disputes and challenges.

6.4.5 Increased delays for the forestry sector

The introduction of an NES could lead to an increase in the delays experienced by the forestry sector, particularly in areas where there are currently no rules concerning forestry activities. New regulatory requirements introduce the potential for delays to the extent that councils must first provide permission, or obtain information they consider suitable, before forestry operators are entitled to carry out certain forestry activities such as harvesting.

The reduction in flexibility for forestry operators as to when they are able to carry out harvesting activities can have negative consequences if it prevents forest owners from taking advantage of favourable market conditions (eg, high log prices or low shipping costs). Because of the volatility of these prices, delays can have adverse impacts on forest owners. Consequently, any such adverse impact of a delay that arises because of new regulatory requirements would constitute a cost.

Given the volatility of these prices, the timing of harvesting can have significant impacts on the returns to forest owners. For instance, it is not uncommon for prices of logs to change by $5 per tonne over the course of a year (ie, a 5 per cent or 10 per cent fluctuation). For example, this can alter the return on a 100-hectare forest block, which could generate around 50,000 tonnes, by around $250,000.

6.4.6 Increased costs for certain forestry activities

In areas where an NES would lead to more stringent rules (eg, where there are currently no rules), an NES could increase the costs of carrying out certain activities. For example, if an NES were to require that culvert pipes used in a certain area be larger than those currently allowed, this may increase the costs faced by the forestry sector, although this impact would be relatively minor.

Also, rules governing setbacks could have a negative impact on some forest owners if these rules were to become more stringent. If setback requirements were increased because of an NES, this could reduce the amount of forest that could be grown and harvested in a given forest block. A resulting reduction in returns to affected forestry owners, which could be manifested as a reduction in land value, would constitute a cost of an NES.

Another example of how costs may be increased for the forestry sector is if rules governing harvesting activity that seek to limit scouring are more stringent (eg, if logs must be lifted rather than dragged along the ground in certain areas). It is possible that as a result of such a requirement, more roads may need to be used on certain sites. This may not only increase costs for foresters, but may also result in a larger environmental footprint.

In areas where there are currently no rules, an NES could lead to forestry companies applying for Code of Compliance certificates for permitted activities. Such certification can be used as confirmation that all relevant terms and conditions have been adhered to. The costs of this certification are generally minor (around $200).

6.4.7 Negative environmental impacts

Negative environmental impacts from forestry activities can be ‘on-site’ or ‘off-site’ impacts. On-site impacts can include soil erosion, which can reduce the capacity of land to sustain vegetation. Off-site impacts can include:

  • downstream impacts on in-stream values and ecosystems from increased sedimentation
  • reduction in the flood capacity of waterways because of sedimentation
  • harvest debris harming infrastructure (eg, floodgates, bridges)
  • negative impacts on receiving environments, which could be close to urban areas (eg, floods and land slips).

The potential for negative environmental outcomes from an NES are perhaps most likely if an NES resulted in rules that were more lenient than existing rules in certain areas, although these impacts would not occur in all such areas. Specifically, if an activity that currently requires consent becomes permitted, there may be less scope for councils, or other affected parties, to object if there are environmental concerns. This is more likely in areas where current rules have been designed to manage specific risks that arise within a particular location or region.

Also, allowing some activities to become permitted rather than requiring consent could have an impact on the degree of compliance monitoring that occurs in relation to these activities. This stems from the fact that whereas councils tend to recover the costs of compliance monitoring of consented activities via charges, they do not typically charge for any monitoring they carry out in relation to permitted activities. These costs can include staff time and water testing.

The Local Government Act allows for councils to charge for monitoring in relation to permitted activity conditions, but in practice it appears that councils do not institute charges because of the complexity and cost of applying this legislation. Consequently, if an NES were to give more activities permitted status, the costs of monitoring may no longer be imposed on forestry operators, but instead may be passed on to councils.

If councils maintain the same level of monitoring, the outcomes from an NES in terms of monitoring would be unchanged. However, councils could potentially reduce their monitoring activity if they were to face budgetary constraints. Also, because the permitted nature of the activities in question may mean fewer reporting requirements, councils may be less aware of the need for specific monitoring in some cases. As a result, less monitoring could occur in these areas. Although this may reduce monitoring costs, it could also increase the likelihood of negative environmental impacts.

Questions:

85. Have we accurately reflected the range of costs and benefits arising from the proposals for an NES, and who might bear the costs or receive the benefits?

86. Are there any costs and benefits we have overlooked? Do you have specific costs or benefits in your location? Do the estimates on costs and benefits seem correct?

87. Do you have any information you would like to see included in the final cost–benefit analysis that will be carried out after the submissions are received and analysed?

88. In the area/s you operate in, what would the impact of the NES be on forestry operations, including any increased/decreased need for resource consent?

89. Do current plantation forestry rules materially influence industry investment decisions and regional location decisions?