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Freshwater package backed by comprehensive economic analysis

Freshwater package backed by comprehensive economic and impact analysis

Decisions on the Action for Healthy Waterways package are supported by comprehensive environmental and economic impact analysis by leading New Zealand research institutes, universities, and private sector firms.

Studies produced include national as well as catchment- and farm-level policy impacts on key groups (including farmers, regional councils and Māori,) and analysis of industry, regional and national costs and benefits.

Since it was first released for consultation in September 2019 there have been significant changes made to the package, which take into account more than 17,500 submissions, other advice and consultation as well as the impact of COVID-19.

“Officials’ estimate of the big picture for the economy is that the package will bring net benefits of $193 million a year over 30 years,” Environment Minister David Parker said.

Costs and benefits

Officials estimate the net benefits of the proposals – that is the benefits minus the costs – to be $193 million per annum over 30 years (about $3.8 billion Present Value, PV). To put this in context, annual GDP is approximately $300 billion.
While many important benefits can’t be quantified, those that could be quantified have an aggregate average annual value of $359 million per annum up to 2050. They primarily stem from improved swimmability bringing reduced health risks, retention of ecosystem services from wetlands such as flood attenuation and water storage, and improved ecosystem health outcomes.

Estimated average annual costs are approximately $166 million per annum (about $3.2 billion PV) up to 2050. Of this, about $124 million per annum ($1.8 billion PV), will be borne by the primary sector, stemming mainly from proposals on stock exclusion, FW-FPs, and strengthened nitrogen attributes, and the remainder will be borne by local government and ratepayers

Changes made to the package since consultation and in light of Covid-19 have reduced the costs of the package by an estimated $3.4 billion (PV).

The land use change resulting from this package includes productive land lost to setbacks from rivers as a result of the stock exclusion requirements, some amount of afforestation in hill country pasture to reduce erosion and sediment entering waterways. Modelling was done on the basis of 6,600 hectares in reduced dairy area, out of a total of 2 million hectares in dairy production, to reduce nitrogen pollution.

While the direct impacts of these policies, such as rules on stock exclusion and bottom lines for sediment and nitrate toxicity, have been quantified, there are a number of other benefits and costs that have been considered as part of the analysis and informed decisions that cannot be quantified. For example, the importance of recreational opportunities, giving effect to cultural values and the opportunity cost of slowing further intensification.

These policies will require councils to rethink their approach to water management and increase their focus on important aspects of freshwater health, which too often have been overlooked. While the costs to councils of these policies has been assessed, the benefits and costs to the wider public of improved freshwater management will be considered at the regional level through the planning process.

The comprehensive impact analysis that supports the Action for Healthy Waterways decisions will be available on the Ministry for the Environment’s website.

Background notes:

Modelling of environmental policies is complex, and requires significant amounts of data, and a range of assumptions - such as how people will respond to regulations, what markets will do in the future and what new technologies will be available.

All of the policies expected to have the most significant economic impact were judged to have met the standards of Treasury’s rigorous Regulatory Impact Analysis (RIA) process. Overall, Treasury found that the approach to the analysis for this package is generally sound and is based on relevant available data.

Policies within the package have changed as a result of the impact analysis and to incorporate feedback from consultation, the Independent Advisory Panel’s recommendations and changing circumstances brought on by the Covid-19 pandemic.

Eleven reports were completed to inform decisions to consult on the package, and were provided for public consultation in September 2019.

During consultation it was acknowledged that significant work was still required on nutrients policy and the combined impacts of the package. The impact analysis builds on information received during consultation. Officials worked with NIWA and independent economic consultants to provide updated estimates of the impacts of the policies consulted on.

In total, a further 22 reports were produced to inform final decisions. These reports covered the economic, environmental, social and cultural impacts of the package.

Other consultants and agencies involved include Maanaki Whenua, Agfirst, Macfarlane Rural Business, Boffa Miskell, Resource Economics, NZIER, Sapere Research, Infometrics, Our Land And Water, Perrin Ag, Castalia and Lincoln University.

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