Moreover, he says, "growing populations and competition among users are putting an increasing strain on New Zealand's water resources".
At present water is allocated by regional councils "generally on a first-in-first-served basis, often creating a 'gold rush' when a water resource becomes available", Counsell says.
Limited transfer of water rights is allowed under the RMA, but there has been little trading.
Counsell has identified four main problems:
* The first-in-first-served approach is an ineffective way of allocating water.
* Urban water systems are often in poor condition and water losses from pipelines are high in some areas, in part because public owners have not priced it high enough to cover maintenance and capital costs.
* Metering and usage-based pricing is not widely used so there are no incentives for users to conserve water.
* There are issues with the RMA regarding the consultation process and the limited use of available tools.
Overseas studies, Counsell says, have shown the benefits of the development of water markets:
* Allocative efficiency by moving water from uses that have a low value to society to higher-value uses.
* Efficient use of water because markets provide users with incentives to sell unused water.
* Removal of political favouritism in making allocation decisions.
* Delaying possibly expensive new infrastructure to increase water supply by allowing extra water to be purchased.
* Encouraging investment in projects that are water-intensive.
Counsell has scanned practices in Britain, Australia, Colorado, Mexico and Chile which span the range of approaches from mostly administrative (as in New Zealand and Britain) to mostly market (Chile).
No one system is ideal for New Zealand, he says. All have pluses. Counsell says effective markets need:
* Effective institutional arrangements.
* Appropriate infrastructure to facilitate trading.
* Effective definition of rights, including specification of priorities and proportional allocations.
* Deciding the most appropriate method of initially allocating rights, whether by auctioning or grandfathering.
Counsell's third possibility is corporatisation or privatisation of water utilities.
Privatisation has boosted infrastructure investment in England but has been ruled out by the Government here. However, some councils have corporatised their water retailers into LATEs (local authority trading enterprises).
Counsell's final lesson from overseas is controversial: metering households. An OECD survey in 1999 found two-thirds of OECD countries meter more than 90 per cent of single-family houses but this country meters only 25 per cent. Yet metering can identify leakages and high-users. Counsell suggests selective metering may be more appropriate than universal metering.
"New Zealand's water environment has its own distinct features that limit the application of a universal model of best practice.
"However, New Zealand can go some way towards developing the appropriate framework by learning from international experience and establishing effective institutional and legal arrangements."
* Kevin Counsell, Achieving Efficiency in Water Allocation: A Review of Domestic and International Practices (New Zealand Institute for the Study of Competition and Regulation).
Achieving Efficiency in Water Allocation:A Review of Domestic and International Practices(Requires the free Adobe Acrobat Reader)
