Amongst ways to avoid the tragedy of the commons are to use administrative
or economic tools that recognise the value of a resource, but even an advanced
administrative system may not cope with demand for water in the absence
of an economic instrument to measure its availability. Once
the resource is defined, it is necessary to allocate rights to it, typically
based on historic or economic criteria, and to devise means to monitor
its abundance and police its use. Even assigning economic value
through private ownership carries the difficulty of defining ownership.
There are also costs associated with the definition. This chapter
examines the concepts of water as a) an administered common resource, b)
a private resource and c) an economic hybrid of those two.
If private property rights are to be practical they must be definable.
A parcel of land is definable because it can be measured out.
Being rigidly defined, landholding boundaries can be expected to stand
the test of time. Even if the overlying material is stripped
away, it is still possible to ascertain the area to which the title deed
applies. Water is not so conveniently circumscribed.
It is a fluid that flows across property boundaries and through zones of
administrative control. Further, it cannot be tagged to an
owner unless that person owns the entire catchment, and even then there
may be difficulties relating to depth aquifers.
There is a cost to private property in the institutions that uphold it. Police and the courts uphold property rights by punishing infringements, defining the property and recognising the owners. Under Common Law, the definition and enforcement of property can be expensive to an individual and a difficult concept for the courts. In the case of groundwater, it is very expensive to measure, let alone to model, how much water is there, and the procedure customarily employed involves many untested assumptions. The cost of defining how much water is available for ownership, then enforcing that ownership may outweigh the benefit of allowing that resource to be privately owned. Figure 1.1 shows how the benefits of more precise definition and targeted enforcement of private property may usurp its value. Only where water is scarce and highly sort after do the benefits of costly institutions become evident (Anderson and Hill, 1960).
Figure 3.1. Hypothetical diagram showing
marginal benefits and costs of refining property definition and enforcement
procedures (from Anderson and Hill, 1960).
It can be argued that some natural resources should not be privately
owned. Water is a natural resource, goes that argument, and
it should be readily available to all. Such a claim recognises
that because humans have not modified water none can claim they have mixed
their labour with it and made it theirs. People may, however,
have mixed their labour with water extraction equipment and could then
be able to claim the water passing through that process as theirs.
Through mechanical abstraction and reticulation an irrigator has added
value to the water and uses it to profit on the farm.
In 1690, the English philosopher, John Locke wrote his Second Treatise of Government wherein he developed the notion of acquired property rights once labour is involved. “Though the water running from the fountain be everyone’s, yet who can doubt but that in the pitcher is his only who drew it out?” (Locke, (republished) 1991)
Locke’s argument in favour of private property is rooted in the biblical account of God giving all the Earth to Adam and his heirs. He claims that at base nobody, not even the state, owns resources, rather, an individual can lay claim to them by adding value to the material. Locke’s thought had profound influence on the European settlement of the United States. Thomas Jefferson drew many of his ideas about private property from Locke’s writings, and most land in the new Republic was allocated through the means Locke had advocated (Arneil, 1996). Central to Locke’s ideas was a clear limit to the amount of a natural resource that an individual could claim: in effect precisely that which could be harvested by that person. In the case of what was termed “unowned land,” Charles Davenant concluded that a plantation in the United States of America should only extend “as far as we can cultivate” (Arneil 1996). As a result only land that could be cultivated or improved and harvested by the person could be claimed as his or her own. Once successfully claimed, the resources are held by the individual in perpetuity or until are sold, or when they are given away.
Application of Locke’s ideas to water could be taken to mean that those who first draw water for their own use first from a stream or aquifer have acquired first right to drawing at least that amount in perpetuity. Under this system, a person may not claim more water than he or she can use, and one could not claim additional water from the source once the supply is fully exploited. A water right claimant would have to use the water for a defined period of time before he or she could claim it as a perpetual right. The courts could define this time period, taking into consideration that agricultural water rights are unlikely to be used in times of high rainfall.
The other limit set by Locke was that the amount of a resource a person can take should never “become a bar to the industry of others” (Arneil 1996). This principle became enshrined in English Common Law and by extension to New Zealand through the case of Rylands v Fletcher (1866). The presiding Judge established strict legal liability for any new and unnatural hazard that causes damage to a neighbour’s property regardless of who is at fault. To apply this principle to water means that any pollution of human origin that damages a neighbour’s water supply could result in a civil action, as in Cambridge Water Co. v Eastern Counties Leather (1994). Pollutants from Eastern Counties Leather seeped into Cambridge Water Co.’s well rendering the water unsafe for human consumption. The British courts found Cambridge Water Co. liable for damages, and this case, as with a lot of British law, sets a precedent for New Zealand.
The initial privatisation of property in the United States following Lockean principles differs from the way property has been privatised recently in New Zealand. The proposal to auction segments of the high frequency radio spectrum is based on the assumption that the government of a country owns all resources not in private hands. Until used, frequency bands for radio transmission are not value-added resources, so a Lockean argument would be for the first broadcaster on a high frequency wave band to claim it (Rand 1964a). In many respects the Tradeable Water Permits system examined in this dissertation is conceptually similar to the privatisation of high frequency wave bands.
Other property privatised by the government is sold as a monopoly, such
as Telecom and electricity lines distribution. The partial
privatisation of electricity distribution in New Zealand resulted in line
companies owning the entire distribution network within an area: a monopoly-type
situation. There is widespread dissatisfaction with monopolistic
lines companies charging high rates (Small 1999), and the Fully Privatised
Catchment system of water allocation could raise similar concerns.
At present in New Zealand, water is a common resource administered
by regional government through the Resource Management Act (1991) (RMA).
Wherever water supplies are scarce, unrestricted access would result in
Hardin’s tragedy of the commons. To avoid depletion of scarce
water resources, and to ensure agreed environmental standards, a council
will usually ration water in water-short catchments by reducing the amount
available in times of high demand, employing water allocation committees,
rostering use and calling for voluntary reductions in abstraction through
public notice (Begg, 1995).
Water rights were initially assigned on a first come, first served basis, but since enactment of the RMA all water right applications and renewals have gone through the resource consent process (Wallace, 2000). The procedures employed must take into account economic, social and ecological views, with the ultimate aim of sustainable use (Taylor 1997).
Water rights usually expire after two years if they are not used but they have a maximum period of 35 years, with some councils opting for 10 years or less.
The Regional Council’s task is to work out how much water is available
for allocation and to assign it. When done well, this avoids
the tragedy of the commons because the resource is protected.
It does little, however, to encourage efficient use of water other than
restricting abstraction when supplies are low.
Efficient use of water is the main objective of a system of Tradeable
Water Permits. Ownership of the resource is not important as
long as the water rights is used efficiently and access rights can be traded
as if they are private property. The notion of Tradeable Water
Permits has been advocated by the New Zealand Business Roundtable (Begg,
1995) and Hide (1987), both arguing for institutional reform of resource
access in New Zealand. The Business Roundtable and Hide assume
that the Resource Management Act (1991) will continue to govern resource
management in this country, and have not considered alternatives beyond
modification of it.
Tradeable Water Permits could be administered by a government body, whose job it is to monitor how much water is normally available. This will be a difficult task because of natural fluctuations in water supply, but it is necessary to ensure that water supplies are not over-allocated. Allocating the water and determining the environmental effects of that allocation as per the RMA (1991) are ways to ensure that pollution and other property violations are avoided. The administrating body would also need to maintain a register of water permits, and ensure that the requirements attached to a water right are adhered to through official monitoring and policing. If one user were to transfer a water right to another for payment, then that transaction would have to be registered with the governing body, probably for a small fee. Because water is not easily identifiable as belonging to an individual, the water right holder needs to be registered so that policing of uptake can occur (Begg 1995). If one is taking more than his or her water right allows then it is difficult for an affected user to complain unless he or she knows that the abstractor has not bought a new water right to cover the higher drawdown. A register would resolve this problem. All the administrative jobs will involve fees, and Begg (1995) argues that high administrative fees prevent transaction among water users.
Begg (1995) outlines the possible benefits of Tradeable Water Permits, including flexible response to the changing value of water in different industries. For example if irrigated crop farming began losing profitability, while irrigated dairy farming grows in profitability, then Tradeable Water Permits would facilitate increased access to water on the more profitable farm.
Another benefit of Tradeable Water Permits is that they assign economic value to water, which means that the opportunity cost of not using the water to its highest value can be measured as a monetary value. If a water right holder is making a poor financial return on his or her water right then its value may persuade him or her to sell to another user. Tradeable Water Permits are incentives to low-value users wishing to sell their rights to high-value users because the latter will be able to offer a price that the low-value user sees as economically more justified than simply holding and, but not using, the water right.
Begg (1995) and Hide (1987) argue for perpetual water permits because that system encourages long term planning for water users and is a better use of private capital. “Perpetual permits would better ensure that the permit holder faces the costs and benefits of decisions on the use of the resource” (Begg 1995). Perpetual permits would also avoid distortions in the market value of a permit as it approaches its expiry.
In contrast to Locke (1991) and Rand (1967a) Begg also argues that new water rights should be sold to the highest bidder, much like the radio spectrum in order to make the resource available to the most efficient user with the least possible delay. Begg and Hide state, however, that existing holders retain ownership over their water rights. Confiscation of existing rights would cause nervousness in the market, because property rights could not be guaranteed.
Begg acknowledges difficulties in protecting in-stream users of water
under a Tradeable Water Permits scheme. Minimum flows will
remain subject to political decisions unless conservation groups can buy
and sell water rights. Begg and Hide see political decisions
as undesirable because they cause uncertainty for water right holders.
The ability of in-stream users to purchase water rights for water to remain
in-stream would place conservation decisions in the hands of in-stream
users. This is preferable to a system where lobbying is the
means of obtaining a conservation decision. However, the Tradeable
Water Permits scenario set up in this dissertation assumes that a council
will continue to set minimum water flows and conservation standards.
The scenario of a Fully Privatised Catchment removes the state from
the water allocation process, with the exception of enforcing contracts.
One owner would own all the water within a catchment, bear responsibility
for assigning it to users, and setting environmental standards.
The notion removes the problem of defining ownership of water because one
individual or organisation owns all water within the catchment.
Most water is contained within the topographical highs of the land, although
administrative problems of ownership will occur wherever deep aquifers
cross catchment boundaries.
Initial allocation of water resources could model the telecommunication and electricity reticulation reforms with the whole catchment sold to the highest bidder: an individual, a company, or a co-operative.
The water owner can then sell water to users, in-stream as well as abstractors, and even sell the right to pollute the water. In-stream users would have to pay for the cost of not having water abstracted. The right to pollute is in stark contrast to the current system where water quality standards are an absolute. The economic incentive to please the suite of customers should ensure the water is never too polluted to use, and that supplies regularly go to the highest value users. Paradoxically selling the right to pollute would encourage a reduction of pollution through cleaner practices because the polluter has an economic incentive to do so. By selling the right to pollute, a reduction in pollution will result in lower pollution fees for the polluter. This is a positive incentive for the polluter to reduce pollution rather than a negative incentive offered by regulation.
The owner of a catchment’s water may sell it as a perpetual right, a leased right, according to regular tender process, or in any other way that suits owner and customer. When it leaves a catchment, there may be further problems with the water that enters the sea so polluted that it may harm the inshore fishing industry. As such, the water company may need to pay the fishing industry, or reduce its negotiated pollution.
The advantages of a Fully Privatised Catchment rest in the true value of the water being known at all times, so the best use of it is encouraged. It also reveals in-stream use and pollution as costs to abstractors, and provides a politics-free method to resolve issues of access.
A monopoly situation is used for this scenario because it means that the water company can control all aspects of the water in the catchment without being affected by upstream companies. Despite the monopoly situation, there are opportunities for competition with adjoining catchments. When water is scarce in one catchment, the price could rise until it is economic for a company in a neighbouring catchment to reticulate water into the water-short area. Similarly if local supplies of water are of unacceptable quality, then better water may be available from another catchment. Because the price of the water will always be known, a competing water company will know exactly when it is profitable for them to begin reticulation from the neighbouring catchment.
A Fully Privatised Catchment signals the end to political control the government may exert over water allocation. On the other hand the system may end up expropriating a value-added resource from those who created value in the first place (Begg, 1995). Confiscation of current water rights is necessary if the water company is to retain its monopoly ownership over the catchment.
The Current Administrative Process, the Tradeable Water Permits, and
the Fully Privatised Catchment provide scenarios for examination in the
field. They are summarised in Appendix
C. Chapter Four concerns the field area.