New Zealand, as Sir Geoffrey Palmer once intoned, is a "very pluvial" country. This abundance has allowed us to be almost effortlessly 'clean and green' while supporting one of the most productive land-based economies in the world.

But those days are gone. New Zealand still has plenty of water but not always in the right places at the right times, our waterways are under increased pressure, and demand continues to climb exponentially with the result that – on current trajectories - most catchments will be either fully allocated or over-allocated within the next two years.

Fresh water management is now, according to Environment Minister Nick Smith, "the big daddy in the room after climate change". To an extent, the problems are due to the highly devolved framework created by the Resource Management Act 1991 (RMA). The RMA was designed to promote a 'village well' participatory democracy in which decisions were made at the local level and all voices would be heard, and it has been quite successful in those respects.

But it operates on a simple first come, first served basis which does not allow for competing uses to be compared against each other in terms of their economic utility. And it is not good at managing scarcity.

The crunch point came in Canterbury first. Canterbury is important to the national economy. It accounts for around 70% of New Zealand's fresh water resource, much of the nation's hydro-electricity and a growing slice of its horticultural and agricultural production, having sustained a 60.5% increase in dairy herd since 2002.

But the Canterbury Regional Council (ECan) was struggling under the load, and in 2007-08 achieved only 29% compliance with statutory timeframes for processing resource consents. Fed up, the Government sacked the 14 elected councillors this year and appointed Commissioners who are charged with fast-tracking a water plan for Canterbury.

This work is running in parallel with the work of the Land and Water Forum – a private sector stakeholder group comprising major water users in agriculture, industry and power generation as well as environmental and recreational groups and Māori.

The Forum released its report in September and is now engaged in a lengthy round of public consultations which will take it through to March after which it may make further recommendations to the Government.

The Government is not expected to make final decisions until the end of 2011 – almost certainly after the general elections because water management is a highly emotive subject and anything which even hints of privatisation will generate an allergic response among sections of the public.

A two-stage process is contemplated: both stages of which will be controversial. The first stage will involve deciding how much water should be reserved for ecological, environmental and recreational purposes and how much can be released for productive exploitation.

The second stage, once the amount of available water (or acceptable contaminant load) is determined, will be to develop instruments' to maximise the economic value of the resource by ensuring that it is put to optimal use.

However, instead of recommending a single allocative mechanism, the Forum identified three possible options for the Government to investigate in more detail. These are to:

  • continue with existing consents and, as they expire, change the consent conditions to (for example) require greater technical efficiency or a shorter use period
  • introduce a new system through rules set out in a regional plan (which might be based on criteria relating to efficiency and to community considerations, and could provide a degree of preference for existing consent holders), or
  • establish a market value for the use of the water by, for example, tendering, auctioning or re-tendering permits.

A large part of the reason for the over-allocation is that, because the water has been free, people have been incentivised to apply for the maximum volume they are ever likely to use (say in a drought year) which means that, for much of the time, they are under-using their entitlement.

But it is hard for permit holders to transfer their surplus to others as it is bundled into a 'take and use' resource consent and only the 'use' or part of the 'use' needs to be transferred. Also there is no ability to charge for the use and therefore limited incentive to engage.

Key therefore to developing a more efficient water management policy is to provide mechanisms by which permit rights can be traded or transferred. And, again, the Forum identified three options rather than one.These are to:

  • transfer water permits without financial consideration (an approach which recognises water as a community asset)
  • trade permits without payment for the original permit (this approach already exists to some extent and allows recognition of how the value of water changes according to different uses and at different times), and
  • trade permits after payment for the original permit(this would establish a property right in the permit but only after the permit has been paid for and would allow the permit-owner to realise a return for a public asset).

The Government had hoped that heads would be banged together in the Forum and a national consensus emerge to take the political sting out of the issue. This was always optimistic given that there will be winners and losers for every decision which is taken. The Forum's inability to agree on a preferred method for managing competing claims and for the creation of a secondary water market provides some indication of the rockiness ahead.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.