Appendix B: Available Quantitative Data Relevant to Potential Economic Benefits

Introduction

Economic value of fresh water

A study by the Institute of Geological & Nuclear Sciences (White et al, 2004) provides estimates for the economic value of surface water and groundwater in various uses. The report itself concedes that the estimates are likely to have a high margin of error due to data limitations. Combining the estimates for the 100 surface water catchments of largest value and the 100 groundwater aquifers of largest value gives the following estimates for economic value:

• domestic use: $499 million per annum

• stock use:⁹ $9 million per annum

• industrial use: $34,215 million per annum.

This excludes an estimate for the economic value of water used for irrigation. However, a study by Harris and Skilton (2007) provides estimates for the allocative efficiency gains from the proposed National Environmental Standard for Water Measuring Devices. This report concludes that the present value, at a 10 per cent discount rate, for improved allocative efficiency arising from a 2.5 per cent increase in consumptive water take for irrigation in highly allocated regions is $31.8 million. This implies the economic value of water used for irrigation in these regions is around $1,270 million in present value terms, or $127 million per annum.¹⁰

This gives an estimate for total economic value for water used of $34,850 million per year,¹¹ dominated by the economic value of water in industrial use. This excludes any economic value for water used in electricity generation (because the water is not 'consumed' or 'taken'), or the economic value for 'passive' or 'in-stream' uses. It is expected that the NPS will have an impact on the quality and allocation available of fresh water for all these uses.

Presumably such estimates could be used in conjunction with assumptions about the extent to which the proposed NPS leads to more efficient use of water. For example, supposing it could be claimed that the proposed NPS would lead to a 1 per cent increase in the availability of water, without increasing costs of supply, as compared to the without NPS scenario. This means there would be an economic benefit to New Zealand of $389 million per annum. On the basis of the way in which the economic values of water use have been estimated, this economic benefit can be considered in terms of increased profits from additional production and/or saving in the costs of water supply. It should also be noted that in the future we can expect economic values to rise as greater demands are placed on New Zealand’s finite freshwater resources.

The economic value of New Zealand’s clean green image

A study by PA Consultants (2001) estimated the economic value to New Zealand’s dairy and tourism industries from its clean green image. With respect to the dairy industry, it was estimated that returns would decline by between $241 million per annum (if all of the lost export sales are redirected to less profitable markets and commodities) and $569 million per annum (if none of the lost export sales are redirected to less profitable markets and commodities) if New Zealand’s environment was perceived by consumers in overseas markets as being degraded.

With respect to the tourism industry, under a scenario of worsened environmental perceptions and international tourists’ purchasing behaviour changing by reducing their length of stay in New Zealand, the economic cost to New Zealand was estimated at between $530 million and $938 million per annum, depending on whether lost wages and GST effects are taken into account. This covered tourists from New Zealand’s five major markets at that time (Australia, Japan, Korea, the United Kingdom and the United States of America).

On the basis of these research results, and having regard to:

• other export products, whose sales would be affected by perceptions about New Zealand’s environment

• growth in volumes since 2000

• inflation and real price increases for sales since 2000

• a greater awareness and responsiveness to environmental concerns now as compared to 2000.

$1,000 million per annum might be a conservative approximate estimate for the current (2008) economic value of New Zealand’s clean green image. Again it would seem reasonable to assume that this value will rise with the passage of time.

Health benefits of improved freshwater quality

A 2006 study (Cowie and Nokes, 2006) estimated that water-borne diseases cost New Zealand $25 million per annum, while another study (Ministry for the Environment, 2007a) gives two overseas examples of one-off disease outbreaks having economic costs of $140 million and $205 million.

Other studies

The various reports available concerning the Waitaki catchment water allocation appear to give measures of economic benefits and costs that are too project-specific to be of assistance. Other studies reviewed (Sinclair Knight Merz, 2007; Ministry for the Environment, 2008) contain quantitative information on costs and cost savings only in relation to regulatory processes.

Comparison of quantitative data and costs and benefits

Appendix 1 estimated implementation costs for central government of $1.15 million and for local government of $100.1 million, giving total implementation costs for government of $101.25 million (in present value terms).

To place this cost in some sort of context, this appendix has identified the following estimates:

• the economic value of the water take by industrial, agricultural, commercial and residential users: $34.85 billion per annum

• the economic value of New Zealand’s clean green image: $1 billion per annum

• the economic cost to New Zealand of water-borne diseases of $25 million per annum, and one-off outbreaks of disease potentially costing in the range of $140 million to $200 million each.

Unfortunately, it is not possible to realistically estimate the impact the proposed NPS may have on these economic values. However, they do provide some sort of context in which to consider whether the implementation costs of the proposed NPS are excessive relative to benefits.