More Crafar-like Judgments Expected Unless EEZ Bill Reformed

20 February 2012

More Crafar-like court judgments can be expected unless legislation to govern use of the ocean is reformed and clarified.

The Bill to regulate activities in New Zealand’s EEZ sets up a decision-making regime that is lopsided and not specific enough.

Unless this draft legislation is reformed, the first major decision the Environmental Protection Agency (EPA) makes under its provisions will be taken to court to test what is the proper way to measure economic benefit – just as with last week’s Crafar farms case, and with the same potential for upset.

New Zealand’s EEZ is a public estate. It is rational to permit use of the EEZ for activities such as oil drilling and sand mining only if there is expected to be a gain for New Zealand, overall. If there is not a net gain, New Zealand would be poorer.

Under the Bill, the EPA can apparently approve an activity simply if the gains from “economic development” are greater than “adverse effects on the environment” (s.61(2)). To compare only economic benefits against only environmental costs would bias the assessment process from the start. The Bill needs to be changed so that it compares all relevant costs and benefits.

The appropriate scope of benefits to count is just the first thing that would be tested in court. There is also no specification of the methodology to be used to assess those benefits. In particular, there is nothing to say what the EPA should take as the counterfactual to any proposed activity in order to assess the net gain to New Zealand – precisely the issue the Crafar farms case turned on. That counterfactual should be the best practicable alternative.

Cost/benefit analysis loses its utility the more there is uncertainty over the inputs – and there is a high level of uncertainty with many environmental costs. Minimum environmental standards and clear principles should therefore be used to bound the results from a cost/benefit assessment as this would reduce the risk of getting decisions badly wrong due to bad inputs.

A further important change to the Bill suggested by the Sustainability Council in its submission is removal of the caps on liability and the level of insurance a developer must hold. When liability is capped, it is the taxpayer that picks up the tab. Developers that face the full costs of their activities receive the appropriate financial incentive to protect the environment.

ENDS

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