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7. Costs and Benefits of the Proposed Standard

A preliminary assessment of the costs and benefits of the proposed national environmental standard has been undertaken. The complete analysis will be reported in two parts: an initial scoping assessment, presented in summary here, followed by a fuller quantification after an analysis of the consultation responses and formulation of a final position on the proposed standard.

7.1 Introduction

This section identifies the costs and benefits that would be likely to arise from the Proposed National Environmental Standard for On-site Wastewater Systems. The cost−benefit analysis completed as part of the development process initially considered two options for establishing a WOF-style inspection scheme:

  • require all domestic systems to be inspected

  • require the inspection of systems located in specific, targeted areas (ie, hotspots and/or sensitive areas).

The initial assessment of the costs and benefits of applying a national environmental standard to every property with an on-site system indicated the costs would far outweigh any potential benefits of such a regime. The costs of applying the proposed standard to 'everyone everywhere' are approximately six times higher than the 'targeted area' approach, but only provide approximately three times the benefit (see Table 5.)

As a result, this discussion document only considers the targeted application of a proposed standard to areas or locations that have existing problems, or where there is likely to be a risk to the environment from existing or new on-site systems. One key point to note is that it has not been possible to quantify the potential environmental benefits of improving the performance of on-site systems. Note also that the costs and benefits are only summarised here: further in-depth analysis of the costs and benefits (COVEC Ltd 2007) is available on request.

Table 5: Preliminary evaluation of options for applying the proposed standard (approximate estimates)

Option

Systems affected (estimated)

Average annual total costs ($ million)

Potential annual public health benefits ($ million)

Annual environmental benefits

Benefit:cost ratio (excluding environmental benefits)

Targeted application of NES

42,000

$3.4–$5.2

$0.75–$3

Unquantified
Tick. Tick.

0.20–0.52

Everyone everywhere (DISCARDED)

255,000

$21–$31

$1.5–$6

Unquantified
Tick. Tick. Tick.

0.064–0.17

7.1.1 Limitations

Most of the costs can be estimated with a reasonable degree of certainty, but many of the benefits cannot be quantified. For example, there are environmental benefits from reducing the discharge of untreated or partially treated wastewater to the environment, but attributing a monetary value to these is difficult. Also, the effects from discharges are often the result of multiple activities, of which discharges from on-site systems are only one contributing factor along with agriculture, discharges from boats, wildlife, etc.

For public health effects, a paucity of data also makes quantification difficult. Estimates are based on opinions given by a number of organisations and technical experts, and provide order-of-magnitude estimates of the public health benefits. Some impacts − including environmental benefits − are outlined but not quantified. A small number of councils currently operate inspection schemes,16 and data received from these councils has been used to help estimate administration and compliance costs.

Where there is a great deal of uncertainty around estimates of the benefits, they have not been included in the quantitative analysis. However, their significance has been included qualitatively as an indication, and they are discussed further in 7.3.3.

A further evaluation will be undertaken after consultation when a report and recommendation on the comments and proposed regulations (standards) is provided to the Minister for the Environment for consideration. Section 32 of the RMA requires that an evaluation be undertaken of whether, having regard to their efficiency and effectiveness, the methods in the NES are the most appropriate. The benefits and costs of the proposals and the risk of acting or not acting if there is uncertain or insufficient information must also be taken into account.

7.2 Overview of the analysis

The potential impacts of the proposed standard are analysed from the perspective of society as a whole. This includes all impacts regardless of whether they are incurred by, or accrue to, private inspectors, regional and territorial authorities, central government or households. Also, this analysis measures only the additional costs and benefits that would be generated by the proposed standard, and which would not occur otherwise, which means that few, if any, additional costs or benefits would be generated in those areas that already operate WOF-type inspection schemes.

Out of an estimated total of 270,000 on-site systems in New Zealand, it is estimated that approximately 15 percent, or 42,000 systems, would be located in areas that are either hotspots with existing problems or areas where there is a high risk of environmental degradation from failing on-site systems (EMS Ltd, 2007). Of these systems, around 2,000 are likely to be located in areas where there is already an inspection system. Consequently, the number of systems used to calculate cost estimates is 40,000.

7.3 Costs

7.3.1 Administration and inspection costs

Assuming a three-year period to implement the proposed standard, the cost of inspecting 13,000 systems per year is estimated to be around $470,000. The initial administrative cost for all councils is estimated to total $210,000 in the first year of the scheme, which includes work to identify hotspots and sensitive areas. The one-off costs of establishing training and certification for inspectors is estimated to be around $30,000 (borne by the Ministry for the Environment). The labour costs incurred in training enough inspectors (around 300) would be approximately $22,000. Approximately 10 full-time equivalent staff would be required for ongoing administration by councils, at a cost of $800,000 per year. The cost for property owners is estimated at $35 per inspection,17 with one inspection every three years.

7.3.2 Compliance costs

Compliance costs include the costs of repair, maintenance and system upgrades that would not occur without the implementation of the proposed standard. Assuming that 15 to 50 per cent of all systems in hotspots fail a WOF inspection, the total estimated compliance costs imposed by this scheme could be around $2.1 million to $7.8 million per year for the first three years. These estimates account for the fact that a proportion of systems would need one-off repairs or upgrades to bring them up to the required level. After this initial three-year period, during which all the systems in the targeted areas would be inspected at least once, ongoing compliance would be expected to fall to around $2 million to $3.1 million per year.

7.3.3 Total costs

Based on the assumptions discussed above, the total cost of the proposed standard is estimated to range from $31.9 million to $48.9 million in current dollars. The largest component would be compliance costs. This equates to an average cost of $3.4 million to $5.2 million annually for the next 20 years.

Table 6: Total costs (current dollars, 20-year period)

Cost type

Cost ($ million)

Failure rate:

15%

50%

Inspection (property owners)

4.0

4.0

Administration (regional councils)

7.0

7.0

Compliance (regional councils)

20.9

37.9

Total

31.9

48.9

Average (per year)

3.4

5.2

7.4 Benefits

Although on-site wastewater systems located in targeted areas are only around 15 per cent of the total, these systems are likely to account for a much larger proportion of the public health and environmental impacts. This is because the locations have been selected as hotspots based on the relatively significant negative impacts caused by on-site systems.

Because these hotspots are likely to account for a disproportionate level of negative impacts, applying a WOF inspection scheme to this 15 per cent of systems is estimated to lead to a 30 to 50 per cent reduction in the public health costs and environmental damage arising from on-site systems.

7.4.1 Public health impacts

Although it is impossible to accurately determine the precise impact of reduced contamination of drinking-water, recreational water bodies, shellfish and ground surfaces in targeted areas, the magnitude of these impacts could be a potential reduction in public health costs of around $500,000 to $3.0 million per year. This is based on assumptions derived from information and opinions obtained from various organisations, including the Ministry of Health, various regional and territorial authorities, the New Zealand Food Safety Authority, Northland District Health Board, NIWA, and various experts who have carried out studies of infections from water-borne and food-borne pathogens.

Cost−benefit analyses of safe sanitation (drinking-water supplies and sewerage) have been evaluated on several occasions but tend to be incomplete because of the standard of notified illness data available for water-borne diseases in New Zealand. In rural areas people often do not seek medical advice for diarrhoea, and overworked rural GPs rarely report notifiable diseases. Yet New Zealand has some of the highest notified water-borne disease rates in the OECD, and such rates are likely to be under-reported by between 10 and 100 times.18

7.4.2 Environmental benefits

Although the environmental benefits of improving the performance of on-site systems are largely unquantifiable, an attempt has been made here to indicate the likely extent of the impact that on-site systems may be having on the environment. Waterways and ecosystems that become polluted with effluent can suffer adverse environmental effects. For instance, excess algal growth caused by elevated nutrients or the digestion of wastewater can deprive waterways of oxygen. Fish and other aquatic life can die as a result. Reduced contamination from on-site systems as a result of a WOF scheme would provide various benefits, such as increased water-based recreational activity or reduced risk of closure of commercial shellfish farms.

Table 7 provides estimates of the number of waterways located near potential hotspots that have been identified in earlier research. Improving the performance of failing systems in hotspot areas will contribute to improving the environmental quality of these areas.

Table 7: Estimate of waterways in hotspots affected by failing systems

Localised area around systems and nearby stormwater drains

Total number

Groundwater sites

c. 10

Streams

100−120

Rivers

10−20

Lakes

c. 10

Estuaries

10−20

Sheltered marine

40−60

Open coastal

30−50

Source: EMS Ltd, 2007.

Note: The figures in this table need to be regarded with some caution, and should be considered approximate estimates only. These figures are likely to underestimate the number of water bodies potentially affected, because of under-reporting by local authorities (eg, where monitoring is not occurring). This is especially the case for effects on groundwater and lakes.

Preferences for reduced environmental damage

Nutrient inputs from failing on-site systems are generally not in high enough concentrations (in comparison with other catchment sources) to cause substantial adverse impacts. However, they do contribute to the cumulative effects caused by multiple sources that may contaminate a catchment. In some locations, however, on-site systems may generate substantive negative environmental impacts themselves, such as in enclosed water bodies that are sensitive to high input of nutrients from on-site systems in comparison to other sources. Any reduction of this environmental damage would constitute a benefit.

This benefit would arise because many people in society have a preference for reduced pollution and less environmental damage. This preference may exist even if the benefits of a cleaner greener environment are not enjoyed directly. There would be acceptance of the measures being introduced in the knowledge that they would for example help to protect New Zealand’s 'clean green' image.

Increased recreational activity

Where recreational areas such as beaches and lakes become contaminated, councils may place signs warning the public of the risks of using these areas. In some cases, beaches may be closed. Even if there is no formal action taken by councils or authorities, communities may become aware of the level of contamination of certain beaches and lakes over time.

The effect of these measures, and increased awareness of contamination, is to reduce the recreational use of these areas. The inability, or unwillingness, of people to use the areas constitutes a cost. This cost may manifest itself in the form of additional time and expense incurred in travelling to alternative areas or, if there are no nearby alternatives, there is a cost in the form of lost enjoyment from not being able to engage in water-based recreational activities at all. To the extent that an inspection scheme would reduce contamination of these areas and thereby increase recreational activities, this would constitute a benefit.

Increased commercial shellfish production

A reduction in the contamination of marine waters used to farm shellfish would reduce the likelihood of the harvesting of shellfish crops being prohibited in affected areas. In some cases contamination may cause delays in harvests; in other cases entire marine farms may be closed or prevented from being established. An example of farm closure occurred at Waikare Inlet in the Bay of Islands. In this case, nine oyster farmers were forced to close their farms in 2001 after traces of the norovirus carried in human effluent were discovered.19 These farms accounted for 30 per cent of New Zealand’s oyster production, a significant proportion of which is exported.20

The farmers subsequently sued the Far North District Council for $12 million in damages (largely lost output), blaming a nearby treatment plant for the contamination. During the case the Council suggested that nearby on-site systems could be a major contributing factor to the level of contamination. Subsequently, the court found that the treatment plant could not be proven to be the source of the contamination.

Another example is the contamination of the marine area of Papanui Inlet in Dunedin City, which has resulted in the Council prohibiting this area from being used for commercial marine farming.

To the extent that an inspection scheme allowed for greater production from marine farms, the benefit could be substantial, perhaps in the region of millions of dollars.

Reduction in disputes

As well as disputes over the contamination of marine farms, there have also been disputes between developers, councils and/or district health boards regarding contamination from on-site systems. Because of the occasional difficulties faced in gathering sufficient evidence that on-site systems are responsible for public health impacts in specific areas, actions by district health boards and/or councils may be challenged in court, for instance by developers. To the extent that a national environmental standard provides support for the actions or policies of district health boards and/or councils and reduces the scope for challenge, this constitutes a benefit in that expensive legal action may be avoided.

7.5 Conclusion

Applying a proposed standard to targeted areas results in an estimated total cost, in current dollars, ranging from $3.4 million to $5.2 million per year over 20 years ($31.9 million to $48.9 million), the largest component of which would be compliance costs for the owners of on-site systems. To generate a positive net impact for the wider community, a proposed standard would need to create annual benefits of, on average, $3.4 million to $5.2 million. Given that the public health benefits alone could be in the vicinity of up to $3 million per year, a targeted inspection scheme appears likely to be able to provide a net benefit to society.

Questions

  1. Have we accurately reflected the range of costs and benefits arising from the proposals for a national environmental standard, and who might bear the costs or receive the benefits?
  2. Are there any costs and benefits we have overlooked?
  3. Do you have information you would like to see included in the cost−benefit analysis that will be carried out after the submissions are received and analysed?
  4. Are our estimates of costs and benefits accurate?
  5. Do you have information on costs and benefits that could assist the second stage of our assessment (of the impacts of any final proposals)?
  6. Do you have any information on costs and benefits that we have been unable to quantify?

16 These authorities include the Far North District Council, Environment Bay of Plenty and Waitakere City Council.

17 This is based on fees paid in the Bay of Plenty region and is exclusive of GST. This charge would cover all costs, including staff wages, vehicle depreciation, fuel, materials, etc. This analysis assumes inspections would take an average of 30 minutes.

18 This fact has been adversely commented on in the OECD’s EnvironmentalPerformance Review of New Zealand, which was released on 5 April 2007.

19 “No appeal by oyster farmers”, Northern Advocate, 14 November 2006.

20 “Pollution hit oyster-growers hoping to re-open farms”, New Zealand Herald, 20 November 2006.