Nor Any Drop to Drink: Should We Be More Systematic with Water Property Rights?

Listener: 15 May, 2004.

Keywords: Environment & Resources;

Energy is ultimately the key to sustainability, but the first civilisations were based on water. In some cases, the quality water supplies ran out, perhaps from rising salt in irrigated soil, and the civilisation died. This threat is not peculiar to the past. There are great lakes in the middle of Asia dying from mismanagement, African countries dispute over water from the Nile, and even the US and Australia have major water systems that are disappearing or the soil is suffering from excess salt, with serious economic consequences.

Although their systems have property rights that allow users to draw off water for certain purposes, the rights – often based on a “first come first, served” principle – are typically clumsy and often inconsistent with the hydrology. If they allow the drawing off of more water than is available, then those downstream will suffer, and some entitlements will be ineffective. Australia’s great Murray River is a trickle near the sea. Even if those in charge get the hydrology correct, the purposes for which the water is used are often inefficient.

The same problem can apply to sea fish. In a sombre article in the July 2003 Scientific American, Canadian fisheries scientists Daniel Pauly and Reg Watson describe the parlous state of the world’s fisheries, suggesting that many are in danger of collapsing from overfishing. It is a combination of thinking that the resource is unlimited (and simple – the article presents a fascinating insight into the complexity of fisheries) and failing to regulate the take where the stock is known to be limited. Over the last decade, fish landings have been declining by about 700,000 tonnes a year: about double New Zealand’s total annual catch. Not surprisingly, the world price of fish is rising.

New Zealand is an exception, because we restrict the total allowable catch to sustainable levels, using a system of individual transferable quotas (ITQs). This gives long-term property rights to the fishers, the transferring enabling them to seek the most efficient means of catching. Given the political paralysis that applies to most of the world’s fisheries (because those overfishing are fiercely reluctant to stop), our system of ITQs places New Zealand in a strong position to be a world supplier of premium sea fish. However, we should take no pleasure that this is happening.

We are not as well-placed in regard to fresh water, despite putting considerable efforts into improving water quality, and assessing the sustainable draw-offs from ground and underground water. But we still seem to think that, except during droughts, the supply of water is unlimited, even if it is no longer a boundless sump for our waste. At the same time, the property rights are often ambiguous and inefficient, confining the water to a particular use and/or location.

So, although fresh-water allocation may not be an immediate problem, it is a looming one. We should prepare for that future now, especially as it will give us another long-run international trading advantage for water-intensive foods. The Australians, with their water shortages, are ahead of us (although in some locations it may be akin to introducing ITQs when there are no fish).

Not only should we be cleaning up water quality, we should also be making property rights in water more rigorous. It will not be easy, because the situation varies from catchment to catchment, the performance of councils that manage them is decidedly patchy, and many think that they have a stronger property right to water than the law provides. The outcome should lead to a more rigorous definition of those rights, grandfathering in existing users where practical. But giving to existing users requires tradeability, to enable the transfer of permits to higher valued uses as demand and technology change. The draw-off rules must be clear, but the purpose and location of the use should not be specified, other than what is necessary for hydrological sustainability. The equivalent in fisheries is that we don’t specify how the fish should be caught or what they should be used for.

There is a nervousness about this commercialisation of water. But we are only arguing over at what point in the value chain water should become tradeable. (An onion is full of water, but we don’t restrict its use.) The international experience is that where there are tradeable water rights, water is usually leased only on a temporary basis, although in the long run, we might expect structural change, with more conservation and recycling.

As our demands increase, we may eventually move to the metering of all urban water, too, shifting the charging for water off the rates. There are those who say that water is too valuable to treat this way. Economists say that it is so valuable we should be thinking about how to use it efficiently, rather than wastefully.