Brian Fallow 's Opinion

The Economics Editor of the NZ Herald

Brian Fallow: From here on every drop counts

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Victoria Park, Auckland. Photo /  Sarah Ivey
Victoria Park, Auckland. Photo / Sarah Ivey

The drought is a timely reminder of how much the New Zealand economy depends on rainfall.

Drought was a contributing factor in the last two recessions and economists are scrambling to revise down their forecasts for GDP this year, and next year, as soil moisture levels fall.

Finance Minister Bill English put it like this in remarks to an Australia Day dinner in January: "In Australia wealth is dug out of the ground. In New Zealand it falls from the sky."

But lately, not so much.

While the fact that this is a grass-fed economy is not about to change, two other things are changing.

One is the climate, posing in the view of the National Institute of Water and Atmospheric Research an increasing risk of drought.

That has important implications for the other change, which is the way freshwater resources - the rivers and lakes - are to be managed.

The Government last weekend released its response to the Land and Water Forum's recommendations for fundamental reform in that area.

In a 2011 report "Scenarios of Regional Drought Under Climate Change" Niwa concluded that at the upper (scarier) end of the range of scenarios it considered there would be a "strong shift to a more drought-prone climate over most agricultural regions, with well over a doubling of time spent in drought across most of New Zealand by the middle of the century."

More likely, though, was that New Zealand could plan for about 10 per cent more time spent in drought in key eastern agricultural regions of both main islands, it said.

The work was based on climate models used in the Intergovernmental Panel on Climate Change's Fourth Assessment Report. The next IPCC report, due in 2015, may well take a darker view of the outlook, if only because of the world's continuing failure to curb emissions.

If so, the focus of domestic policy should increasingly shift to adaptation and resilience.

"The changing nature of drought through the 21st century highlights that basing response on an historically determined understanding of what is normal will increasingly put Governments and farm managers in a weakened position to manage drought risk," Niwa said, adding that sustainable management of New Zealand's irrigation water resources would be a key drought management tool in the future.

In other words the people in a guardianship role over freshwater resources will need to be wary of the assumption that historical hydrological patterns are a reliable guide to the future. That implies a need for caution in allocating rights to take water or to pre-empt inflows through water storage works.

Water is already over-allocated in parts of the country, chiefly North Otago and Canterbury, in the sense that if everyone took all of the water they are permitted to take, instead of the average two-thirds, there would not be enough to go around in the driest times of the year.

But equally they will have to be mindful of how the country earns its living.

One way or another water is vital to about two-thirds of the country's export income (including tourism) and provides a majority of its electricity.

Environmental NGOs and recreational stakeholders will need to rise above the suspicion that water storage and irrigation schemes are just a resource grab, a despoiling of the commons, by farmers happy to turn rivers into open sewers in the cause of making a buck.

Farmers, in turn, will need to show by their behaviour that such suspicions are groundless.

And all decision-makers under the new regime will need to acknowledge that more active management of water has to be part of a defensive adaptation to a changing climate.

The Government is setting up a water infrastructure fund, with an initial $80 million in next May's Budget, to help get regional water storage and irrigation schemes started by providing bridging finance. It has indicated it will make $400 million available for this purpose.

It says that significant areas of land could be more productive with more reliable access to water and that increased water storage will take some pressure off lowland streams and aquifers.

Under the new freshwater regime the validity of such claims will be tested on a catchment-by-catchment basis.

The overarching goal of the reforms is to replace a system that is too often adversarial, litigious and costly with one which is collaborative and seeks consensus among the relevant stakeholders early in the process.

When councils are preparing or changing freshwater-related regional plans they will have the option of appointing a collaborative stakeholder group involving representatives of the community and parties who have a major interest in the water body involved, to advise the council on desired values, objectives and limits.

Iwi will be consulted from the beginning of the process.

Central government will provide national bottom lines on setting objectives and limits.

Once the council has approved a plan reflecting the consensus view of stakeholders, an independent hearings panel with a majority of non-council commissioners will consider public submissions, holding a hearing "with Environment Court rigour".

The council will still make the final decision, subject to appeal rights available only when it has deviated from the recommendations of the hearings panel.

Building confidence in such a process will take time and will not be easy.

The Land and Water Forum has been able over its four years to achieve a remarkable degree of agreement among diverse interest groups.

How much of that goodwill survives as decisions move from the abstract to the concrete and the national to the local remains to be seen.

Some difficult trade-offs will have to be managed.

For example, one objective for the system of allocating permits to take water is to give users clarity and certainty about their rights. Too short a term reduces the incentive to invest in more efficient systems. But the allocation regime must also be able to adapt to changes over time and allow water to move easily to higher-value uses.

The obvious solution is a market in permits. But experience in other areas - fishing quota or the free allocation of carbon emissions permits to the smokestack sector - has shown that the initial doling out of what can become valuable property rights often involves some pretty rough justice, whatever its efficiency benefits down the track.

The consultation document kicks the issue of trading to touch.

All in all, this is one of the more portentous policy initiatives the Government has on the go.

Now is the time for the public to have its say. Submissions close on April 8.

- NZ Herald

Brian Fallow

The Economics Editor of the NZ Herald

Brian Fallow is the New Zealand Herald's economics editor. A Southlander happily transplanted to Wellington, he has been a journalist since 1984 and has covered the economy and related areas of public policy for the Herald since 1995. Why the economy? Because it is where we all live and because the forces at work in it can really mess up people's lives if we are not careful.

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