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2    Use rights

Use rights for the purposes of this paper are rights granted or created by government to use a natural resource. The resource in question may be a fixed quantity such as land (setting aside land quality issues), a depletable commodity such as minerals, a flow such as water, or an absorptive capacity such as the ability of water or land to accept pollution discharges. Coverage is limited to those resources for which government has (by ownership or statute) the rights to manage use or occupation.[1]

Environmental use rights can therefore include taking from or discharging to air or freshwater, occupying land or marine space, or offsetting such actions against each other (e.g. where an action with positive externalities is taken at one place to allow another action with negative externalities somewhere else). The rights may be transferable or not.

Table 1 – Types of Use Rights
Water take permits
Water or air discharge permits
Extraction or collection rights for wildlife, timber or minerals
Access or transit rights
Occupation rights

Use rights provide one means of identifying and prioritising or trading off alternative uses of rights which are under government control. The objective is taken to be the highest value use (or combination of uses) for society, and within each use subsequent allocation to the highest value user (for society).

Societal priorities may vary widely covering any or all of environmental, social, cultural or economic growth (agricultural, industrial, tourism) outcomes. Social priorities can also be built into use rights regimes through such measures as prior rights (eg, minimum environmental flows in rivers) or competitive rights (the ability of interest groups to purchase rights for non-use of resources).

Such use rights (see Table 1 for examples) have common requirements in terms of the information and systems required to support their introduction which allow for them to be discussed together and may provide some scope for economies of scope and scale in their design, implementation and operation. Exploring that scope is the major purpose of this paper.

The other reasons for restricting the scope of this paper is that there is already extensive material available in the general literature on other flexible regulatory approaches such as taxes, subsidies, performance-based standards, education, or moral suasion. Prescriptive regulation is also well understood (see Table 2 for examples of both prescriptive regulation). For some useful starting references on both see (Guerin 2003a) and (Guerin 2003b).

Table 2 – Types of Environmental Regulation
Non-prescriptive     Economic taxes, charges or subsidies use rights to a resource transferable permits or credits offsets
Performance-based Standards
Voluntary Education moral suasion
Prescriptive Regulatory Instruments Process or Equipment specification Input, Output, or Discharge quantity limits. Disclosure requirements and audits. Administrative process specification.

Source: Guerin, 2003

2.1 Types of Use Rights

Existing rights to resources have evolved through a mix of common and statutory law to reflect circumstances in individual countries and regions. For New Zealand examples and more general literature on property rights see (Guerin 2003b). Variations can include rights being attached to land or not, being allocated to government or private parties, and being constrained within “reasonable” limits or linked to environmental constraints or absolute.

For freshwater for example the two most common bases for rights are riparian where landowners have rights to draw on adjacent watercourses for reasonable needs, and appropriative where rights are established on the basis of existing use. The former was an English precedent established over a long period in a densely settled society, while the latter emerged in the western United States where water was a key element in the early economic development of the settler economy around mining and grazing. New Zealand generally operates a system which takes an environmental baseline and allocates only temporary rights above that, reflecting perhaps a reluctance to acknowledge private rights to such an essential resource.

Specific use rights regimes can be desirable where the existing specification and allocation of rights to a resource is inadequate to achieve optimal outcomes for society. This can often arise in situations where negative externalities exist (such as for emissions where permits can cap the quantity of pollution as opposed to taxes which put a floor under the price of polluting) or where there is pressure on open access resources (e.g. fisheries) or resources traditionally used in common (such as land, eg; the foreshore). Establishing secure long-term property rights can provide incentives for efficient management. Such rights only arise spontaneously where transactions costs and social impacts are low.

The reasons for choosing use rights over other means of managing externalities of use focus around improving management incentives. Where there is a limited quantity of a resource, awarding clear long-term rights to a single party provides appropriate incentives to maximise net benefits from use over time, thereby avoiding dissipation of the resource through competition for short-term economic rents.

Such regimes have been criticised as privatisation of the environment but in many circumstances private owners of use rights, acting within legal constraints, can achieve socially desirable outcomes at less cost than statutory regulation or public provision of services. Recognising the costs of resource use explicitly also encourages conservation, while affordability concerns (eg. for domestic water supplies) can be addressed through direct measures such as income support policies or targeted subsidies.

2.2 Issues for government

Whether a use rights regime (for resources or anything else) requires government (executive or legislative) involvement to establish or operate depends on the extent to which it fits within existing regulatory structures and governmental boundaries, its impact on non-rights holders and how it affects other government objectives. Contract-based regimes may be able to be set up and operate within generic legislation resorting only to the judicial system where necessary.

Where government involvement is required to validate a regime or deal with conflicts with existing structures that involvement will tend to focus around providing the rules structure within which conflicts between the interested parties can be resolved. This is a standard role of government in any society. Typical rules cover decision processes, environmental requirements, information gathering and availability, registry processes and trading rules, arrangements for funding the cost of supporting the regime and dispute resolution.

Whether the government itself provides any or all of those functions will depend on factors such as the potential for conflicts of interest, the need for public assurance that the regime is operating impartially and within public policy constraints, overlaps with existing regulatory structures, and competing objectives for the multiple outcomes that can be affected by use rights regimes.

There are inevitably complications created when the government creates new interactions with business through specifying new rights regimes. To begin with, businesses’ existing strategies may be disrupted by the changes, and new strategies cannot be finalised until the new rules are finalised and disseminated, with further delays for implementation.

At the same time, it is difficult for the government to develop such regimes in a robust fashion without a good understanding of how businesses will respond. Ministers and officials also tend not to be well placed to make such judgements, but cannot avoid doing so. They are then faced with the prospect of a degree of close scrutiny and legal review of decisions beyond what would normally be expected, due to the money at stake from those decisions. Risks of corruption also arise. Obtaining the necessary information in advance can be complicated by the lack of existing businesses, or by weak incentives for businesses to engage without some resulting preference to cover their investment, while providing such incentives disadvantages others who did not get that opportunity.

These legal costs and corruption problems can be worse for rights regimes than for other forms of government regulation. The major reason is that the subject of the regulation is explicitly an asset with ongoing income potential, although all regulation affects the distribution of wealth to some degree. The specification and allocation of that asset will inevitably benefit specific individuals and firms, creating obvious incentives.

Issues of local government capacity are particularly significant in the New Zealand context with most environmental decisions delegated to that level. The recent reforms to the local Government Act to facilitate joint planning and operations should help. Issues remain, however, about how to ensure such mechanisms are used when needed, how much central guidance and support is needed or can be provided without compromising local accountability, and the degree to which central government needs to be able to constrain or direct decisions at the local level.

Notes

  • [1]Issues of underlying ownership rights of the Maori people under the Treaty of Waitangi or through aboriginal title are not strictly part of this discussion, but are assumed to be addressed through settlement mechanisms which are then taken into account in management regimes with allowance for existing use rights.
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