3.2 Information

All aspects of the creation and operation of use rights depend on information regarding the resource in question. That information can include the quantum and quality of the resource, its location, the environmental impact of its use and methods for tracking who is using it and how (see Table 4).

The cost and difficulty of obtaining this information can vary tremendously. In some cases it will already exist as a spin-off from other activities or there will be a public interest in generating it regardless of what use rights may exist. In other cases those wishing to operate such rights may have to bear the cost of generating the information up front, sometimes along with other information of public value as part of the price for access to the resource. Relevant factors will include whether the private benefit is sufficient to cover the cost of developing the information, or if not, whether any externalities generated by gathering the information merit a degree of public funding.

Information problems become particularly acute when the underlying science is uncertain, in terms of either general principles or the specific ecosystem in question. This tends to increase the required scope of information gathering and the degree of environmental safety margin provided for in the nature of the rights to be created.

The Resource Management Act 1991 (RMA) requires local authorities to gather the information needed to carry out their functions. This is often implemented through requiring collection and provision of information by private parties as part of applying for or operating under resource consents (Ford, Butcher, Edmonds and Braggins 2001). Such an approach makes sense where the information creates private benefits, but if taken too far risks discouraging worthwhile investment and creating a free-riding effect for subsequent applicants seeking to undertake subsequent activities. Such risks are particularly significant when dealing with “common” resources such as freshwater and the coastal marine area.

In the fishing industry the costs of research on sustainable fish stocks are met primarily by the industry which captures most of the benefits. This has led to significant industry involvement in research management which in turn has raised fears of bias in the research results. Such tensions are inevitable and how they are managed depends on the balance of risks and incentives as identified by regulators.

For minerals, exploration reports are collected from companies under the Crown Minerals Act (1991) and its predecessors and treated as confidential for 5 years, or less if the licence or permit expires before this and no subsequent permit is granted. After the confidential period anybody can view the material or obtain copies at minimal cost. It may be worth investigating such mechanisms elsewhere, although this might discourage investment (the approach could be reviewed if this was a problem, at a cost of some delay in resource development).

Electronic access to resource, consent and trading data could be investigated to reduce costs for both regulators and users of natural resources.

3.3 Specification of rights or process for defining them

Use rights can take many forms. Key characteristics of rights include the extent to which they can be transferred or transformed without requiring third-party approval, the degree of exclusivity they offer over the underlying resource which can range from freehold title to a specified time period or a minimum take to name some examples, duration and right of renewal, whether the right is absolute or proportional, and compensability for any changes to its terms. For details see (Guerin 2003b).

Resource consents under the RMA are specified in terms of the activity that may be performed and the location at which it can occur. The maximum term of consents is 35 years, but can be less, and there is no automatic right of renewal. Most consents are issued for activities on land already controlled by the applicant. Exceptions are for network projects where use of compulsory acquisition powers may be required and for “commons” resources such as the coastal marine area and freshwater.

Specification of water rights is complicated by a number of factors. A major one is the alternative means of use and the fact that not all uses are mutually exclusive. Water can be used in-stream for cultural, environmental, electrical generation, fish farming, recreational or waste absorption purposes.[4] It can also be extracted for consumption including irrigation, after which it may return directly to the stream, be absorbed into products, go to recharge groundwater, evaporate or be discharged to sea. The availability of water also varies by season and by location, though this can be addressed to some degree through storage and transfer facilities (subject to physical and environmental constraints). Interactions between surface and groundwater supplies also require careful management (aquifer management is very complex, particularly where there is a risk of saltwater intrusion).

Water is managed through allocating how much can be abstracted at particular allocations, but the crucial factor is net water use which is highly uncertain because it is not always known how much water is actually abstracted and it is seldom known how much is returned through direct runoff or through recharging of groundwater supplies.[5] This forces highly conservative initial allocations and therefore suboptimal use. Other important variables for water management include level and consistency of flow (minimum levels versus abstraction limits) and the effect of abstraction relative to natural variation, water quality (including temperature and other forms of pollution), and the impact of one user on the residual users. Water use is highly interdependent with many potential externalities.

Fishing quota is now specified in terms of a percentage of the allowable catch in each quota area. This is a modification of the original approach which was based on fixed quantities of fish. That system was changed following the process of buying back quota, at considerable expense, to reflect reductions in expectations of the sustainable catch. This underlines the importance of specifying rights optimally when first defined.

Aquaculture rights are specified in terms of the site within the coastal marine area where that activity can occur and from which other activities can be excluded. Exclusion is often important for aquaculture and is a distinct factor from consents for land-based activities where exclusive title allows prevention of access. The proposed aquaculture reforms represent both success and failure in the context of the development of use rights in New Zealand.

They are a success in that the defining of specified zones in which aquaculture may occur allows for better trade-offs between alternative uses of the coastal marine environment, and in that the space within such zones is intended to be allocated to the highest value use.

They are a failure, however, in that they demonstrate how the RMA has not been able to manage the nature of use, and who is able to carry out that use, of the “commons” within its generic framework. The limitations for managing the commons of the “first come first served” approach and rights that do not roll over and cannot easily be switched to other uses did not allow for resolution of the emerging problems consequent on the rapidly developing aquaculture industry. Hence the need for a highly disruptive moratorium (freezing applications until a new regime is in place) and lengthy transition period to the new regime.[6]

Mining permits for Crown-owned minerals give exclusive rights for specific minerals in particular areas. For other minerals the surface land owner has full rights.

As the above discussion will have illustrated to some degree, the importance of certain characteristics vary by the nature of the resource being dealt with and sometimes by the nature of the use. For abstraction of water the essential requirements are the volume and location of the take, but other factors can also be crucial. Irrigation needs water at certain times of the year in minimum quantities, which may or may not correspond with the times it is required for hydro-generation or recreational or environmental purposes.

For aquaculture, the essential requirement is exclusive occupation of space, but the type of aquaculture being practiced will affect the type and level of investment required, and therefore the importance of the term of the right and how expiry and renewal are treated. For both irrigation and aquaculture, the ability to constrain other uses that affect water quality will be important. In defining a new regime, getting the key characteristics of the right worked out in advance will be crucial.

3.4 Valuation of rights

Valuation data on environmental use rights in New Zealand is limited. In particular, here is a lack of readily available pricing information for resource consents under the RMA (including for aquaculture and freshwater).

Such consents relate to resources for which government has management or ownership rights. They have been issued to date at no charge for the underlying resource which is likely to be causing excess demand and encouraging excessive expenditure on influencing allocation processes. This would change for aquaculture under the proposed reforms with tendering of the limited space which could reveal price data, but charging for freshwater is not currently proposed. Consents can be traded after issue (though locations may be fixed) but there is not distinct market or recording of values, which also vary in response to differences in the form of the consent and local factors.

Initial allocations of fishing quota in New Zealand were at no charge based on a implicit existing right derived from past catch history. Current values are however readily determined in a commercial market, except for quota covered by the Maori Fisheries Settlement which has a reduced value and limited market liquidity due to ownership restrictions. A deemed value process is used to charge for by-catch (fish caught but not covered by the fisher’s quota holdings) and is based on market prices. For existing radio spectrum Telecom New Zealand was charged half of the tender price for new spectrum.

In the absence of markets the valuation of resources such as freshwater, or the ability to discharge to air or water, is subjective. There is also a wider question about the valuation of non-traded environmental benefits which are affected by either existing regulatory arrangements or proposed new use rights regimes. Some of these can also be valued in use terms, such as the ability to walk through a bush area or drink from or fish in a waterway, which it may be possible to obtain reasonable valuation proxies in terms of time spent or tourism revenue or the cost of equivalent commercial activities.

Other such benefits, however, have to be assessed in terms of existence values where people find the knowledge that such a feature exists to be of value even if they will never visit it themselves. Such valuations are inherently difficult to perform and open to criticism but equally are unavoidable. In designing a use rights regime either the initial policy decisions or the planning framework must take account of such issues in order to permit efficient use

Once value has been determined, the question will arise of whether there should be a specific charge for access to the resource. Relevant factors will include whether the activity has net positive spin-offs that would not occur under such a charge, the extent to which benefits are captured by existing tax regimes, and how the activities benefits are distributed. Practice varies widely.