“The strange thing is that, by any rational
measure, California has plenty of water. But it is distributed, and priced,
so bizarrely that some areas are short and others are soaked” (Anon
1998).
The world’s rapidly growing population is
placing greater pressure on supplies of fresh water and there is an international
push for water to be treated as an economic resource. In March
2000, the Second International Water Conference was held in The Hague,
and was run by the United Nations and the World Bank. This
forum fostered a wide-ranging debate on the economic status of water, and
participants recognised that in order to satisfy demand for fresh water
in the 21st century institutional change will be needed to encourage efficient
water use (Second World Water Forum, 2000a).
Fresh water consumption is estimated to increase 40% by 2020, while provision for irrigation water will need to increase by 17 to 50% to feed the world’s population, which is estimated to reach between eight and nine billion by 2050 (Ickes, 2000). To satisfy demand, efficient water use is imperative. The recycling of water, drip irrigation, and use of saline water where fresh water is not important, such as for sanitation, could all help meet the demands of future water users.
Water is an essential resource for drinking, food preparation, sanitation, industry and agriculture. To ensure a supply of good quality fresh water is “one of the greatest challenges of the remaining years of the twentieth century”(Jones and Hollier 1997). The challenge will be even greater in the twenty-first century, and systems of water allocation will play a major role in meeting this goal. Water quality is major issue worldwide, and pollution is cited as a serious problems for to New Zealand waterways (Taylor et al 1997).
To date, most of the world’s fresh water has been administered as common property, where a decision about who can have access to it is usually taken by the state or one of its agencies. Water is usually free to consumers, or priced to cover the cost of distribution. The UN water conference heard the call for a more market driven system of water supply to encourage efficient use of water and allow access fair to all users.
That conference sparked many newspaper and magazine editorials supporting the move to ascribe economic value to water supplies: for example The Economist (Anon 2000a), The Financial Times, and The New York Times (Anon 2000b). A “user pays” and a “polluter pays” system for water are the main recommendations reached by the Global Environmental Facility (GEF), a body affiliated to the United Nations and the World Bank (Ickes, 2000). The GEF regards efficient consumption and conservation as going hand in hand with market prices, justifying full-cost pricing of water services.
In California some areas are growing “rice paddies where there was desert”(Anon 1998), while other areas are considering importing bulk water by container ship from Canada (Anon 1999). Government subsidies and the inability to trade the water is given as the reason for the poor distribution of water in California (Anon 1998).
This dissertation examines the concept of ascribing
economic value to water for use on farms, and is based on a free-market
system. In particular, the implementation of a market driven
system, as well as its moral and economic aspects are examined.
The water rights issue can be addressed at
various levels. International conflicts are likely over water,
especially in the Middle East where major rivers like the Euphrates, Jordan
and Tigris cross international borders. Turkey is currently
building a dam on the Tigris River, which runs into Iraq and along the
Iranian border with Iraq. Turkey has refused comprehensively
to inform or consult with its downstream neighbours, who may resort to
warfare to claim what they believe is theirs (Rivernet, 2000).
When upstream users take water they restrict the use of that resource by downstream users, and that applies to individuals as well as nations. Conflicts between individual users can arise and have been with us for some time, as Mark Twain’s 19th century quip “Whiskey is for drinking, water is for fighting about” (Ickes, 2000) indicates.
Conflict over access to water may arise between parties in areas as small as a catchment, which is the scale this study will focus on. All freshwater in its natural condition within a catchment, surface as well as subsurface, is considered. Water in pipes, artificial tanks and reservoirs is not considered because it is not in its natural condition and is already owned.
Much work has been done at the international level
on conflict resolution over the water supply problem (Second Water Forum,
2000b) but little analysis of the catchment water allocation systems has
occurred. This dissertation concerns new policy aimed at the
catchment level for water allocation.
During the last two decades of the 20th century,
there was a wide-ranging move towards the privatisation of common property
resources and Crown entities in New Zealand. Telecommunications,
electricity, forestry, transport, construction and banking services are
five of the many that were privatised in the late 1980s and throughout
the 1990s. There is still debate about the benefits of privatisation,
and it reveals significant differences between political parties; for example
ACT being in support of, and the Alliance against, the free-market approach.
Critics of free-market reform have usually commented on the effects of privatisation on unemployment, rural decline and various other social indicators. The points made are debatable, but it is difficult to dispute the success of privatised companies in terms of economic efficiency, growth and profitability. Since Telecom’s privatisation for example, New Zealand has been hailed as having one of the best communications systems in the world (King 1991), and the company has consistently returned profits to its investors.
Water is also a resource, but it has not been privatised in New Zealand. Currently, water rights are held by individuals. However, those rights are difficult to trade, expire after a set period, and are not necessarily assigned on the basis of demonstrable efficiency of use.
Fresh water management in New Zealand comes under the Resource Management Act (1991) and lies within the jurisdiction of a regional council. Water rights are assigned after a resource consent process where interested parties are consulted. Those parties include other users of water, and neighbouring property owners. Restrictions over water use are placed by a regional council, which monitors usage and pollution. A resource consent assigned to a water user usually attaches to the property, so it is difficult to sell or buy water rights without land changing hands or having the original consent modified. A short summary of the current system for deciding on water rights can be found in Appendix C.
The Business Roundtable has published a discussion paper on the allocation of water, arguing the case for tradeable water permits within a reformed administration system (Begg, 1995). That paper argues that the current set-up of local authority control is less efficient and more expensive than it should be. It outlines proposals for privatising the infrastructure of water supply as well as the provision of water rights. This dissertation will not consider a privatised infrastructure, but rather privatisation of the unbounded water within a catchment.
Linked to the idea of private ownership of resources is individual responsibility for them. Responsibility covers pollution, so any pollutants allowed to enter a neighbouring water supply could result in the recouping of costs by the damaged party from the polluter through official channels such as the courts.
While private property rights have long been recognised in law, a particular class of property is rarely privatised: i.e. resources that do not conform to property boundaries, including water, wild animals, plants and air. Such resources cannot easily be labelled as belonging to someone. A parallel example would be the sheep farmer who had no fences on his/her property. Water, unless it is collected and stored, may cross boundaries as a fluid or a vapour. Impermeable fencing of a property might make definition easier, and electronic fencing of oceans for fish has already been mooted as a possibility (Reisman, 1998), indicating that somewhere down the track, truly private water supplies may become possible through technology. The definition of unbounded private resources will be examined in Chapter 3.
The right to own resources, make profits from them, and retain the earned benefits are not well entrenched in New Zealand society (Perigo 1997), so if common property is to be privatised an agreed rationale is required. It is an assertion of this dissertation that private property rights require moral as well as economic justification. Both concepts will be explored in Chapter 2, along with the antithesis of private property, common property.
The Business Roundtable report on the allocation
of fresh water (Begg 1995) is evidence of dissatisfaction with the current
regime, something that has been echoed in personal communications with
me. Hardin (1968) rejects unregulated common property as a
sustainable system of ownership, and Reisman (1998) rejects the claim that
a regulated resource allocation system can be efficient or fair.
This study will examine those claims in relation to a small New Zealand
river catchment.
The Kakanui River catchment in North Otago
is small enough (894km2) to manage and normally experiences an excess of
demand over supply. The region is used primarily for agriculture
and is prone to drought, so both groundwater and river water are heavily
used for irrigation. Water is held as common property, but
users are able to acquire water rights for abstraction in a similar fashion
to a lease agreement.
The most pressing problem in the Kakanui catchment is the over-allocation of water rights. Water rights were initially given out on a first-come, first-served basis, but the water was over-allocated by the regulatory body. The result is a groundwater system that is depleting and a river that is having an increasing amount of its water drawn off, resulting in less water being available to the original users or for conservation purposes.
Also stemming from the over-allocation of water in the catchment is the concern of in-stream users, who see the life of the river being drained away by irrigator abstractors (Palmer 1999). In response to heavy water usage for irrigation and depleting the river in the early 1980s, regulation has come by the way of minimum flow restrictions.
Despite (or perhaps because of) the said regulation, conflict centres around political control of the resource, jeopardising water right security and leading to lengthy and costly water right battles.
It is proposed that regulatory burdens, lack of security for property rights, and inability to trade water rights result in a politically controlled, inefficient, insecure, less productive use of water. Alternative systems of water allocation are examined, following the proposal of The Business Roundtable (Begg 1995) for Tradeable Water Permits and a Fully Privatised Catchment modelled on the privatisation of electricity lines companies.
To assess that research proposal, a theoretical framework for private property rights is developed in Chapter 2 and applied to water in Chapter 3. It examines water as an economic resource. Chapter 4 outlines in detail the current demand and supply problems for water use in the Kakanui Catchment.
Through interviews with users, potential users and administrators, experiences of and opinions about the current system of water allocation were collected. Proposals for an economic system of “Tradeable Water Permits” and a “Fully Privatised Catchment” were put before interviewees for comment. The research strategy for this study, including an account of the methodology, is outlined Chapter 5 followed by a summary of the results in Chapter 6. They show widespread dissatisfaction with the status quo, but no clear alternative was generally accepted by those interviewed.
The research proposal is reconsidered in the discussion section (Chapter 7), and issues and alternative systems are analysed. A recommended model for water allocation and ownership is put forward in Chapter 8.