Trading Water Resource Consents

‘Iwi leaders and the Government have agreed on a deadline to sort out Maori interests in fresh water by Waitangi Day 2016.’ (News: 5 February 2015)

Law and economics recognises three distinct aspects of property rights. There is the ability to use the property, the ability to transform it into something else, and the ability to alienate it – that is to transfer the property rights to others.

Typically an electricity generator has a consent which allows it to use water to produce electricity but not for any other purpose. It may not transform it and it may not sell the right to any other (although if the generator is privately owned it can be bought and the consent goes with it).

The same applies for farmers who have consent which allow a draw-off from an aquifer or river for irrigation purposes. (Another consent would be needed if they wanted to use the water for, say, bottling.) They are not allowed to transfer the water to another user (say, the farmer next door). But suppose a farmer irrigates an onion patch, sells you the onion and you eat it. The water from the draw-off, now in your body, is unquestionably privatised. So we do fully privatise some water.

In summary, while the water may not be ‘owned’, there may well be private property rights associated with it, typically formalised by a resource consent issued under the Resource Management Act. In effect the consent partially – or, in some cases, fully – privatises water.

I want to raise two consequential issues – whether the resource consent should be alienable and what is the Maori entitlement.

As far as I can see, there should be no great objections to being able to transfer the usage rights of resource consent to another – there may be a payment in return. We already do this with the fishing resource with its individual tradeable quotas. The experience elsewhere suggests that typically the transfer of a property right to use water will be on a temporary basis – a lease. I do not think there will necessarily be great efficiency gains but there will be some. One farmer might find it cheaper to put in a storage dam, another might switch to a water-conserving crop, each using the revenue from the lease to fund the investment.

We should be trying to conserve our water and use it effectively. A reasonably adequate supply of water is one of New Zealand’s international comparative advantages, especially as some of our competitors are running out of the stuff. So good water management can enhance the economy.

The reluctance to make a change seems to be because of the ‘P’ word of privatisation and the ‘M’ word of Maori claims. But the water is already at least partially privatised via the resource consents while by partial privatising the state electricity generators the government brought to the fore the Maori dimension.

I shall assume, for the purposes of dialogue, that Maori have a claim to the water resource under Te Tiriti o Waitangi similar to their claim to the fishing resource. It may be that a detailed study may conclude otherwise, but let’s make that assumption. (The problem with an alternative is that Maori had possession of the water rights on 5 February 1840. When and how did they pass to the Crown?)

I shall also assume that Maori will treat existing private sector property rights as they have already with the private alienation of land. They greatly regretted the loss of the land, but they have not generally demanded back that which has been legally acquired from the Crown.

The emergency Waitangi Tribunal hearings which followed were unsatisfactory. The submissions never got their heads around how resource consents which established private property rights were at the centre of their claim; the Tribunal’s report was consequently also disappointing. I doubt the same mistake will be made a second time (which is why the negotiations may well open up to all resource consents for water).

What might be the outlines of a settlement? Probably there will be a financial compensation to iwi for consents already privatised, plus an involvement in all further issues of water resource consents. (The fishing settlement included that Maori being automatically given 20 percent of all new quota that was issued). Even so, the final settlements are likely to be complicated (and to be on a catchment by catchment basis) .

The purpose of this contribution is to clarify the issues of property rights and how to think of them in the particular context of the water resource. Additionally it cautions against hotheads – both brown and white – who will offer extreme and ridiculous responses based on shallow analysis. They will be given far more prominence than their importance – that is the way the media and the public rhetoric works.

What I expect is that men and women of goodwill – in the government and in the iwi – will negotiate a deal which will be on the whole fair and efficient (but expensive to the taxpayer).