Over-allocation of water rights in the Kakanui Catchment exemplifies
the “tragedy of the commons” because the cost of an individual abstracting
an unused amount of water within his or her water right is borne by other
water users. This problem arises from the way water is allocated.
The original allocation of water rights in the Kakanui Catchment
followed Lockean principles. Farmers who added value to the
water by using it profitably on their land were able to claim a water right.
However subsequent over-allocation of water indicates that latter applicants
were claiming water which was, in effect, fully used by the original irrigators.
The issuing of supplementary water rights, on the other hand, does not
infringe on the claims of the original water right holders but does allow
for further development of unused water.
The realisation of water rights is susceptible to climatic variation, so any attempt to finalise them has to contain sufficient flexibility to allow for varying availability. If supplementary water rights are allowed, the original water users will be the last to be affected by a decrease in water availability, and newer water right holders would need to accept that their right will be the first to face restrictions in the event of low flow. If a water right is tradable, then initial rights would be more valuable because they are more reliable.
Hindsight suggests that conversion of many primary permits to supplementary permits would prevent over-allocation of scarce water supplies. However, the ground and river water in the Kakanui catchment is already over-allocated so it is the job of water administrators to achieve a fair system. To do nothing means that the amount of water available will be redivided amongst users as demand increases. Equal allocation of water would be to the considerable detriment of current water users who rely on some other users’ water permits lying dormant. To nullify some permits or transfer primary water rights into supplementary water rights would involve confiscation, a move that should be considered carefully.
The widespread concern about unused water rights being sold under a system of Tradeable Water Permits is valid because it would adversely affect existing users. Under Lockean principles, water that has not been utilised is no longer owned, and dormant rights expire. Under Common Law principles, the use of dormant rights may adversely impact on other water right holders. Given the current state of over-allocation, it only seems fair that unused rights should be revoked. A published concern about water right confiscation (Begg 1995) involves the costs of irrigation equipment and readying a farm for irrigation. It follows that farms with dormant water rights have not experienced large irrigation set-up costs.
Dissatisfaction with the Fully Privatised Catchment scenario amongst
Kakanui farmers stemmed from the perception of confiscation of water rights
from existing holders and assigning them to a water company.
At first glance, Lockean principles do not offer potential for in-stream
use of river water, because that does not add value to the resource.
However, in-stream use has a long history in the Kakanui catchment and
it can be argued that although the derived value may not be economic, in-stream
users have added value to the river. Release of trout, development
of water access, and use of pleasure boats all add value to the water in
the stream. Currently, in-stream users cannot apply to keep
water in the river. If they could obtain a water permit and
were able to operate under the same principles as the irrigators - “use
it or lose it” - then they could claim a minimum flow rate as their own
and not have to rely on Regional Council decrees.
The desire amongst landholders to keep the water that falls on their
property is akin to the conflict areas where a river crosses a national
border. The damming of the Tigris by the Turkish Government
effectively confiscates the water rights of downstream users.
To claim that all the water that falls on one’s property maybe morally
justified, but the Lockean argument would probably reveal that someone
already owns the water downstream. In the Western States of
the USA, upstream users were allowed to divert water for “beneficial use”
regardless of whether that water had already been claimed by someone down
stream. This doctrine resulted in many skirmishes; some made
famous by Hollywood movies (Jones and Hollier 1997).
The farmer can rightly claim water that falls on one’s property, infiltrates the topsoil, and is imminently used for plant growth. By growing selected plants, the farmer is adding value to the water, and may claim it as his or her own. However, where changing landuse –for example, from scrub or grass to forestry - reduces runoff and peak flows then will inevitably be calls for regulation of landuse throughout the catchment. Landuse regulation to protect downstream water rights would be tantamount to nationalising the land, an action few governments supportive of private property rights and a globalised economy should lightly contemplate.
There is, however, a paradox. If a nation or individual
is criticised for damming water because it will restrict the rights of
downstream users, then shouldn’t a change in landuse that achieves the
same purpose also be prohibited? Recourse to the principles
of private property, as put forward by Rand (1967 and 1964), Reisman (1998)
and Locke (republished 1991), do not resolve the issue, but they offer
two means to settling any conflict. An upstream user could
buy some of the water right that is being soaked up through landuse change,
thus completing an exchange of mutually acceptable values.
A court using an objective criterion could settle the issue, which may
reduce the scope of an individual’s water right, but has the merit of ensuring
a measure of predictability for planning individual investments.
A regulatory approach would also ensure predictability but could be susceptible
to political interference, something the people interviewed for this study
described as a real threat to their livelihood.
The concern that a Fully Privatised Catchment would take away power
from users and add cost to the water they use is valid. Under
this scenario, a water company would gain rights to the entire catchment,
yet the value of the water comes from the investment that water users have
put into their operations. The argument against government
selling water rights of an entire catchment is akin to discussion about
the radio spectrum: water is not for the government to sell.
As with the radio spectrum, government has done nothing to make water valuable,
so selling it, as proposed by Begg (1995) is morally and ethically unjustified.
Even selling new water rights means that the government is benefiting from
the value of the water that was built up by people having developed it
in some way.
If water should go to those who first used it then Ngai Tahu have historical
rights to the catchment, and should be owners of the water company.
However, such a move would render worthless the investment that irrigators
and in-stream users have placed in local water supplies and would amount
to confiscation. As revealed in the interviews and in the literature,
predictability in law is important. Any arbitrary changing
of the rules that affect the value of people’s property is not only wrong
(Rand 1964 and Reisman 1997), but also discourages further investment because
people will not be able to trust the legal system to protect their investments
(Hide 1987, Rand 1964, Reisman 1997 and Begg 1995).
Pollution of water is not a large problem in the Kakanui catchment.
However the increasing popularity of dairy farming means more intensive
farming will result in more leachates getting into the water system.
The current system of regulation through resource consents makes the decision
to pollute a political one, rather than an agreement between parties.
By selling the right to pollute, as would be possible under a Fully Privatised
Catchment, the true costs of pollution and pollution control would be revealed.
The current process of banning pollution means that those who demand no
pollution do not have to face the costs. On the other hand,
by making polluters pay per pollution unit, there is the incentive to reduce
pollution when that is economically feasible.
By using Common Law to deal with pollution, polluters can expect to
pay damages for their actions unless they reach a prior agreement with
the affected parties. Such a system would also reveal the cost
of pollution because people affected by it would have the option of taking
payment in return for having their resource polluted to an agreed extent.
Perceptions of political manipulation with the current system reveal
the clear need to remove politics from the allocation of water.
Once an economic system with individual water user priority has been installed,
it would remove the political haggling for favours because all water rights
would be well defined and not subject to debate or vote.
The cost of administering the current system is low for most participants, although the high cost of hearings and delays is of concern to many. Opposition to water applications from in-stream users is not so much a direct challenge to the applicant as to the Regional Council which was not perceived to be following the RMA. Property Definition of water as a property right would resolve such conflicts because irrigators and in-stream users would know what they are entitled to, and would not have to battle it out in lengthy and costly resource consent hearings. The Proposed Regional Water Plan would provide guidelines on where different interested parties stand.
Poor monitoring of water use is a problem for any system of water allocation.
Currently, users police themselves through the Water Allocation Committee,
with the Regional Council to back them up if necessary. Flow
restrictors or measuring devices on pumps are expensive ways to ensure
water is not, in effect, stolen. A majority of interviewees
would like that to happen, and it is likely that the Otago Regional Council
will progressively implement a comprehensive monitoring program.
The farmer who informally traded water effectively refutes the claim
that no farmer would be silly enough to trade away his or her water.
While the cost of setting up a farm for irrigation would make it unlikely
for the owner to sell the entire water right, there is scope for selling
the water at times when it is not needed. There is also the
possibility of being offered a price for a water right that is difficult
to refuse.
There are arguments against ascribing economic value to water by giving it ownership: primarily, in that view, people should not own a natural resource. Despite that, land, equipment, livestock, information, fertilizer and seed are just some of the resources a farmer must pay for the farm to be profitable. Like those inputs, water is necessary for growing produce, it is occasionally scarce, and it has a market value. Water is also a value-added resource, because it is of little use to farmers in its natural state beneath the surface or in natural channels. Efforts must be made to extract the water and make it useful, it is this additional value that would be traded.
The concern that powerful companies, overseas interests or certain individuals would end up owning all the water in an area needs to be balanced with the fact that people would have to willingly sell the water to them, and for a reasonable price, before this could happen. If large interests could use the water more profitably then they should be encouraged to do so.
Tradeable or privatised water means that users would have to pay for
what they now receive for free. The concern that that privatised
water would not be used because it would be too expensive is unfounded.
The price would reflect what a user is prepared to pay. Under
such a system some water right holders might receive money by selling their
rights, just as they do now if they sell their property with the water
right attached.
If put into effect, a fully privatised catchment would operate in
a similar fashion to an electricity lines company. If sold
as short term units, the cost of water would go up during peak demand,
which would restrict people from using water when it is the most expensive.
A Fully Privatised Catchment would give water users knowledge of the value
of water at a particular time. Just as electricity is sold
in the bulk market per half-hour unit, so water could be sold on a daily
or weekly basis to reveal its market value.
In-stream users could probably not outbid irrigators for water with their own resources, but the true cost of conservation would become evident. Conservationists would have to rely on government funding, in combination with user fees such as fishing licenses to cover the cost of conservation.
The concern about farmers not being able to afford to irrigate because
the price of privatised water would be too high is unlikely to occur because
a water company would not make a profit by pricing users off the market.
An issue raised in some interviews was the importance of a predictable
system of water allocation so that people could plan their investments
and their lives knowing they will not be subject to arbitrary decisions.
The impending expiry of water permits was of concern to many farmers, especially
those who have invested heavily in their operations. For a
water permit to keep its value, there must be a guarantee that it will
not expire after a few years. The possibility of a notified
hearing, being challenged, and incurring large costs, is a further disincentive
to development. Under a Tradeable Water Permits system, such
disincentives would reduce capital expenditure and, ultimately, the market
value of all water permits because the potential for development is thwarted.
As such, Tradeable Water Permits may reduce “jealous opposition” from other
water permit holders in the application process.
If they are to plan their operations, users need to be able to count on a water supply, so water rights are advantageous. The investment of millions of dollars in converting a farm operation to one requiring irrigation is a major economic risk if the water right must regularly be renewed. On the other hand, the variable nature of ground and river water supplies may require some permits to expire if water rights are over-allocated, as they are in the Kakanui Catchment.
7.6 Free-markets supporting Innovators:
The trend found for strategic thinkers and optimists being supportive
of a free-market approach to water allocation backs up the findings by
Singer (1994) and Kelly (1995). Innovative people’s ability
to fill gaps in the market place is usually stifled by government intervention
because regulatory interference distorts needs and wants by distorting
market prices. Innovative people are likely to benefit from
a free-market and usually support it.
In areas with deficient supplies, water is often reticulated from
catchments with plentiful supplies. Los Angeles pumps much
of its water from the Colorado Catchment, and at considerable expense for
residential and industrial use. Auckland City recently considered
reticulating water from the Waikato River, and many interviewees mentioned
plans for reticulation from the Waitaki. A system based on
the marketable value of water in the Kakanui catchment would help users
decide whether it is profitable to reticulate water from the Waitaki or
to encourage more efficient use of the existing supply.
Many of the interviewees regarded reticulation from the Waitaki as a defining point for the future prosperity of North Otago. Such a scheme would increase economic activity, provide more jobs and expand the value of the farms. Their lack of enthusiasm to pay for the project suggests that the scheme may not be profitable. Government funding for the scheme involves accepting taxpayers’ money, although farmers would argue that it is a way for them to reclaim back money taken from them in taxes over the years. Care will needed to ensure that a government subsidy does not, as in the United States give rise to a situation where subsidised irrigation has resulted in marginal land being farmed at economic as well as ecological loss (O’Rourke 1988, Jones and Hollier 1997).