28 September 2005

‘Water Trading’ Next Step for New Zealand NZ Ignores Overseas Lessons at its Cost

Despite New Zealand’s seemingly abundant supply of fresh water, conflict over water use and access will inevitably lead to a need for a viable water trading scheme. That’s the view of Nick Morris, head of Australia’s largest economic consultancy, ACIL Tasman Ltd Pty, and a former lead adviser to the United Kingdom’s 1980s water privatisation programmes.

Speaking at the New Zealand Water and Wastes Association EnviroNZ05- Water Matters conference in Auckland today, Mr Morris says experience from around the world shows that well established, nationally consistent, water trading schemes have the potential to create major benefits both from an economic as well as an environmental perspective.

“The prime rationale behind any water market is to make more efficient use of what is a limited resource,” says Mr Morris.

“In Australia, where water trading has existed since 1994, there is ample evidence to show that this has occurred with the state of New South Wales alone benefiting by an estimated $60 to $100 million per annum because of water trading,” he says.

This is because water trading effectively moves water usage away from lower value uses such as sheep and cattle grazing to higher value uses such as permanent pasture irrigation and horticulture.

Mr Morris says that the Australian experience also points to environmental benefits – but only if adequate allocations for environmental uses are made by regulators prior to trading for other uses.

“There was initial scepticism from environmental groups about trading water as a commodity but it is now generally accepted that the system leads to lower water cost and a greater allocation for the environment,” he says.

“New Zealand has a major opportunity to learn from the Australian experience – which is generally accepted as being a world-leading model for water trading.

“Other systems such as those existing in Chile and California are either seen as over regulated or too open to influence from market forces.”

Mr Morris says the reforms necessary to create a viable water trading scheme require a fundamental paradigm shift from an engineering, supply-side and central allocation approach to one that uses pricing signals to assist with the efficient and sustainable allocation of water.

“While water reforms in other countries have by no means been perfect, and many issues remain to be tackled, for New Zealand to ignore lessons learned when developing its own water policy will come at significant cost,” says Mr Morris.

ENDS

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