Does NZ need to put a price on water?

by Paul McBeth / 25 May, 2016
With competition for water set to increase, Paul McBeth asks whether we need to put a price on it.
Photo/Getty Images/Listener illustration
Photo/Getty Images/Listener illustration


Recent controversy over foreign companies selling New Zealand drinking water abroad without paying a royalty to the Government is largely a sideshow to the central issue: whether we have enough water in the right places to do what we want to do.

As a whole, New Zealand is flush with water – 145 million litres per person rains down on us annually. We take only 2% of what we have, although things get trickier in some parts of the country at certain times of the year. In urban areas, summer restrictions are often imposed, so people supposedly ease up on watering their gardens and washing their cars, while in the country a dry spell can see brown tracts of land force farmers to send more cows to the meatworks and power companies to fret about hydro-lake levels.

Managing our freshwater resource isn’t a new conundrum, but a Royal Society report in April on what climate change means for the nation ups the ante on reaching a conclusion.

For urban dwellers in coastal cities, the threat of a rising sea level is more pressing. But for agricultural industries – still the cornerstone of New Zealand’s export sector – the availability of fresh water is the key concern.

The society estimates the changing ­climate will lead to a decline in annual average rainfall in eastern and northern regions of both islands and increase the incidence and intensity of droughts and wildfires.

That might sound manageable given the primary sector’s adaptability. However, it will almost certainly coincide with population growth and subsequent urban expansion, meaning greater competition for the country’s water resources.

The Government has been trying to get to the nitty-gritty of that in its national freshwater plan. Submissions on the latest consultation round closed in April and environmental groups led the charge in calling for a price to be placed on water to squeeze the most efficient use out of the resource.

Nestlé’s Peter Brabeck-Letmathe was strongly criticised for his views. Photo/Getty Images
Nestlé’s Peter Brabeck-Letmathe was strongly criticised for his views. Photo/Getty Images

IMPROVED ALLOCATION


Parliamentary Commissioner for the Environment Jan Wright says pricing water makes economic sense where it is scarce and used for production. However, talk about pricing water use can get muddled with the question of ownership, or with levies to pay for infrastructure, as is the case in Auckland.

Wright hasn’t considered ­putting a price on water in any detail, but her advice to policy­makers is “sooner or later New Zealanders must have a serious discussion about water pricing”.

Her thinking is that having a price on water will make it easier to allocate. The present system is based on a first-come, first-served basis – hardly the stuff of economic efficiency and probably an explanation of why more than a third of allocated holdings are unused.

If a price is attached and a royalty imposed, the Environmental Defence Society contends proceeds should fund improving and maintaining the quality of the country’s waterways, ticking off concerns about swimmability.

The issue attracts strong opinions worldwide, as Peter Brabeck-Letmathe, chairman of Nestlé, the world’s largest producer of food products, discovered. He said the view expressed by others such as NGOs that water was a human right and shouldn’t be priced was an “extreme” opinion. He said it was better to give a foodstuff a value so everyone knows it has a price.

Following social media criticism, he backtracked, saying everyone had a right to clean, safe water for drinking and sanitation. But he supported the United Nations’ view that the world’s water is unevenly distributed and too much is wasted, polluted or unsustainably managed. Putting a price on water would allow more efficient management, he says.

COST TO FARMERS


Farmers would be hit hardest by a price on water use. Irrigation is the single ­biggest holder of allocated water resource consents that don’t go back into the waterways, using 78% of weekly water allocations when hydro-generation is excluded. Water stored for hydropower is typically discharged into rivers. Irrigators say they already pay to build infrastructure, which then lets them eke out increased production, which, in turn, generates new jobs regionally and more wealth nationally. Irrigation New Zealand chairwoman Nicky Hyslop says irrigation is too often seen in simple economic terms. Although farmers won’t embrace a project that would leave them out of pocket, there is a growing acceptance that they can’t embark on a scorched-earth policy, she says.

“They’re not going to take on something where they cannot see some economic benefits, but they’re also increasingly aware that alongside that it is about creating a business that is more resilient to environmental changes coming ahead.”

At its annual conference in Oamaru in April, Irrigation NZ took reporters to three well-watered farms in a very brown North Otago. One in ­Duntroon is run by Matt Ross, who has created a wetland for more than 100,000 native plants alongside his thousand or so cows. Ross, a former sharemilker, doesn’t shy from the question of pricing water or introducing a charge for its use. However, he says that threat can’t just loom over irrigators. “If there’s a discussion of whether to tax it, that needs to be a discussion for all New Zealand, not just one sector.”

The Land and Water Forum – which brings together groups across the ­spectrum to try to find common ground on water issues – has made little headway on a water charge since covering it in a major report in late 2012, when it identified pros and cons of making water use more efficient but couldn’t reach consensus for or against pricing. The deadlock becomes harder to break when you throw in the potential for iwi water allocations as part of a Treaty ­settlement – another issue being stirred up for political points. Environment Minister Nick Smith isn’t keen on imposing a national water charge, saying allocation issues are ­limited to certain areas, and “ignore the fact the resource is plentiful”.

Smith hasn’t started wading through submissions on the latest consultation, but speaks highly of proposals to empower councils to voluntarily levy water use to administer the system, and to introduce greater information disclosure as a first step to lifting allocation efficiency. He envisages greater disclosure preceding an informal mechanism for transferring consents, while still allowing for commercial deals, but this wouldn’t be for some time.

Whatever Smith decides will undoubtedly annoy someone. With an election in 2017, it seems unlikely the Government will risk doing anything that will further  antagonise its farmer support base. Although playing for time might be politically astute, it isn’t necessarily environmentally friendly, which is what other voters may care about.

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