Delicate balancing act ahead for minister

Nick Smith needs to find ways of using, and protecting, New Zealand's increasingly polluted water resources. Photo / Rotorua Daily Post

We've told the Government, 'Guys, you need a bigger toolbox and you need to think about economic instruments'," says Alastair Bisley, chairman of the Land and Water Forum, talking about what is required to resolve the issue of water quality and its allocation.

Environment Minister Nick Smith agrees entirely. He's just not ready to say what new economic instruments he will pull out of the box until full public consultation has been completed and officials furnish him with the technical advice needed to implement the forum report's 53 recommendations.

The report makes dismal reading: the quality and availability of water is deteriorating; 64 per cent of lakes are eutrophic, meaning nutrient levels are high and the water is subject to algal blooms, and urban waterways are highly polluted; it's hard to set or manage limits, which is inhibiting economic development; many catchments are over-allocated or approaching over-allocation; development of irrigation, hydro and other big-ticket infrastructure is litigious, expensive and slow.

The Government seems sure to adopt the report's central proposal, to set up a national water policy imposing minimum standards on regional authorities. But the tricky business of changing the present allocation system, including the pricing of water, will likely be Smith's most delicate balancing act.

Big money is potentially involved. In Australia, Smith notes, 1cu m of water per second from the Murray Darling system has a "capital value" of A$50 million ($64.1 million). Using that as a guide, a proposal to take 20cu m out of the Rakaia River "has a $1 billion value, so is it any surprise that we've got lawyers fighting at every stage?" he says.

What Smith can rule out is a pure market solution to water allocation. Markets have difficulty differentiating between the ways water is used, as with energy and irrigation projects, and "are not easily traded because they have different environmental impacts".

He says "people who say they're opposed to any sort of value ascribed to water are living in a fool's paradise", but he is also cautious about pricing, describing it as simplistic. "You get perverse incentives, as we've seen in Australia with their water markets."

However he does recognise that "we do need to get stronger price signals but we need to move with caution because you can get the detail wrong". Perhaps he's thinking of the less-than-successful Bradford reforms of the energy market in the 1990s.

Crude water markets already exist, he says, and a regulatory framework is needed around the ways in which permits, for example, can be traded.

"The problem is the Government and councils have not established the sensible rules to ensure that the public good is managed in those sorts of trades."

Bisley cautions against the Government picking winners based on purely economic outcomes. "If you're doing one economic use at the expense of another you're into big trouble because priorities change and markets change."

After all, water is the stuff of life for "all our ecology and rare species, it's a paramount taonga for iwi and it's central to a lot of New Zealander's recreational habits", says Bisley.

It also supports multibillion-dollar industries upon which the country's economic health depends and all of those interests rest upon the Government making the right decisions, he says.

"If you want peace and you want prosperity you have to do the whole lot at once."