This article is the third in our series on RMA reform, and follows on from our earlier articles on strategic integration of resource management and national direction.
The Resource Management Review Panel recommends a shift from allocating freshwater permits under the existing first-in first-served approach (the Priority Rule) to a new, as yet undetermined approach. This fundamental change will affect a multitude of users.
The Panel's recommendation to move away from the Priority Rule for freshwater allocation is set against the background of increasing resource scarcity. The Panel recommends that scarcity is recognised in new legislation through the inclusion of bottom lines and targets. The use of those scarce resources would be determined by an allocation that is appropriate for coastal water quality, air quality, soil quality, and the quality and extent of terrestrial and aquatic habitats for indigenous species. This is in addition to existing allocation mechanisms for the aquaculture space and urban development capacity. This article focuses primarily on how freshwater resources should be allocated.
The Panel recognises that allocation of freshwater cannot be severed from the wider issue of freshwater ownership. The Waitangi Tribunal has considered proprietary rights of Māori ownership and co-governance of freshwater (Wai 2358). The Waitangi Tribunal has made a series of recommendations affecting freshwater allocation, including replacement of the current allocation regime with one that better partners with Māori. The Panel recognises the need for the Government to engage with those issues and we agree. Exactly how the Government responds to Wai 2358 remains to be seen, but any decisions on proprietary rights to water will fundamentally shape any allocation mechanism. Until that happens, water ownership will remain the elephant in the room on any discussion regarding allocation.
Allocation under the RMA and NPS for Freshwater Management
Allocation of freshwater in the current regime is based on the Priority Rule. The Priority Rule allocates freshwater according to which party files a complete application for resource consent first. It is important to note that the Priority Rule has been developed by the Courts applying administrative law principles, and is not expressly set out in the provisions of the RMA itself.
Recent freshwater reform has added an additional layer to allocation under the Priority Rule. It is implicit in Te Mana o te Wai, the guiding principle in the reformed freshwater management framework under the National Policy Statement for Freshwater Management (NPS-FM), that river health is prioritised first, followed by the health needs of the people, then finally the ability of people and communities to provide for social economic and cultural wellbeing. This hierarchy will guide how freshwater is allocated in the future. The NPS-FM also requires regional councils to include principles in their regional plans to enable the transfer of water permits and to determine how water use can be made more efficient and over-allocation is avoided.
The Panel has found that the Priority Rule is no longer appropriate
The Panel has found the Priority Rule is no longer an appropriate way to allocate rights to take freshwater. The Panel considers unfairness and inefficiency have arisen because the Priority Rule prioritises those with an existing allocation at the expense of potential new users. Inefficiencies result as permit holders are able to enjoy use rights for the length of the water permit, without any requirements to: on one hand, prove that the consented take was required and was used in full (in some circumstances this has led to a "false" over-allocation); and on the other hand, to be more efficient and reduce water usage. Finally, the Panel finds that the existing system disadvantages Māori, where land is returned through treaty settlements and Māori are not able to improve the land through irrigation.
The Panel's proposal for change
The Panel proposes a new set of principles to guide freshwater allocation. These principles will be included in the proposed Natural and Built Environment Act. The Panel has promoted the principles as a guide to resolve competing interests in freshwater. The principles are:
- sustainability – providing for the needs of present and future generations;
- equity – a balance needs to be struck between recognising the investment of existing uses and providing for new opportunities while meeting obligations under Te Tiriti; and
- efficiency – resources to be used efficiently to improve the overall wellbeing of people and communities, including enabling re-allocation of resources.
The Panel considers a range of possible approaches to improve or replace the current allocation regime, and implement those guiding principles.
A merits approach
A merit-based approach could require councils to use objective and subjective measures to determine the 'best' uses of water. The objective measures would look at elements that are capable of being measured such as a property's ability to leach nitrogen while subjective measures would consider the potential for a resource use to contribute to the wellbeing of people and communities. In this model, a common expiry date would also give the chance to consider all uses together and make a comparative judgement of the 'best use' from multiple applicants.
A merits-based approach would require all applications for water takes to be assessed against each other and for water permits to be ranked according to their merits. Any new application would be assessed against that list. We anticipate that process to be difficult at the outset. It would also significantly undermine investment certainty, with any permit seemingly able to be taken away for a 'better' use.
A regulatory approach
The Panel considers that permits could have a shorter duration, which will require them to be re-consented more frequently. Shorter durations will enable councils to refuse consents and review consent conditions. The Panel considered the rationalising of expiry dates would allow comparison between water permits. The Panel's view is that 35 years is only appropriate in very limited circumstances. Although the Panel does not provide examples of the "most important" takes that could be granted a 35-year term, Te Mana o te Wai provides that drinking water is one of the most important uses behind river health itself so that may be one such instance where the full consent term is available. Renewable electricity generation is another prime candidate.
The Panel also supports councils having a greater ability to review consent conditions including incorporating 'clawing-back' a percentage of the consented water take. Any claw-back mechanism would need to assess how efficiently water users were currently using water allocated to them and their capacity for reduction of their allocation – something that is required under the NPS-FM.
A markets approach
Finally, a markets approach could be used to allocate uses. This would allocate water based on the highest economic use of a resource. The main criticism of a markets-based approach is that it prioritises the highest economic use of water above other uses. Those other uses may be equally (or more) meritorious, but unable to compete in economic terms. A markets-based approach also fails to recognise the implicit importance of some uses, for example, for drinking water.
Overall, the Panel proposes a range of allocation tools but does not land on any single option. Instead, the Panel flags a number of different tools that could form part of national direction, and then indicates that councils could then draw down on the different tools and deploy them at will. However, allowing councils to pick and choose could lead to regional inconsistency, which runs counter to the Panel's broader goal of greater coordination. The merits, regulatory and markets-based approaches would all be helpfully informed by Te Mana o te Wai. Following Te Mana o te Wai would mean a percentage of river flow must be maintained for river health as a baseline. Once that minimum baseline has been achieved, only then may water be allocated for the health needs of the people (eg drinking water), followed by social, economic and cultural uses of water. Te Mana o te Wai in the context of the matters above may help to address some of the equity concerns.
Should we move away from the Priority Rule?
The Priority Rule is not perfect, and change is required. However, recognition of priority and existing investment must remain central to any new allocation system. The certainty it provides allows industry to operate, and it is essential for farmers to keep stock healthy and produce crops. These consumptive uses would fail almost immediately if their supply is unreliable. Certainty of supply also enables investment to be placed in water-related infrastructure and industry. A regime with permits permanently at risk of another 'better' use 'gazumping' them would have significant implications for investment.
We agree with the Panel that the relevant principles should be built into the NBEA because allocation is a contested issue and a political one. It is therefore appropriate for these matters to be determined by the legislature. For the same reason, we consider that the allocation mechanism should also be included in national legislation and that there be a consistent approach across New Zealand. It is not appropriate for such a significant issue to be left entirely to subsequent regulation (in the form of national direction). It will be important that the principles included in the legislation are clear and directive to avoid scenarios where there is a perception that allocation is subject to the arbitrary picking of winners by local councils.
We agree that there needs to be more nuance than a blunt first-in first-served mechanism. As a starting point, environmental limits must be met. Any allocation system must enable the review of existing permits to address over-allocation within catchments, and should require industry best practice and the demonstration of need to prevent inefficient water use. We also consider that increasing the ease of trading water permits will assist with addressing over-allocation.
As with all elements of RMA reform, any transition to the new system of allocation is crucial, and law-makers and councils will need to ensure that there is a just transition. Ultimately, big questions of ownership of resources will need to be answered prior to meaningful implementation of a new regime.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.