Legal Issues
It may be useful to amend the Resource Management Act (RMA) to give councils the authority, where necessary to achieve water quality standards in designated water bodies, to deem diffuse runoff to be a discharge requiring a resource consent. This would allow a discharge consent to be issued to a CMC, stating water quality standards to be met, It might also allow a consent to be withheld from an individual who refused to join a CMC or adopt BMPs. Although this may be possible at present, the Act is not clear.
Alternatively, the "permit" described above could simply be a non-statutory contractual agreement between a CMC and a council, whereby the council agrees to forego any landuse restrictions as long as the CMC meets the terms of the contract However, it would be difficult to impose any penalties for breaches of standards unless these were established in a statutory permit.
If landusers were found by the courts to have "existing use" rights for discharging non-point source pollution, this could prevent a council from requiring landusers to bear all the costs associated with meeting standards. In such a case, a council could provide public funding for some of the works or practices required, though the landusers should still be held responsible for compliance.
"Non-Point Source Pollution" in Fisheries
"Non-point source pollution" also occurs in some New Zealand fisheries. For instance, Hooker sea lions, fur seals, and albatross are accidentally killed in various fisheries, and trawling and dredgmg might cause long term damage to seabed ecology. These adverse effects could be managed through collective responsibility.
Pearse (1991) and the Fisheries Task Force (1992) proposed that government devolve certain management responsibilities to associations of quotaholders, which would be required to meet environmental standards set by government. The principal standards would be sustainable catch limits, but standards could also be set to deal with adverse effects of fishing on marine mammals, seabirds, or the seabed.
The approach would be similar to that proposed above for water quality. Ownership of quota, by species and management area, provides an appropriate basis for assigning collective responsibility. Specific legislation could provide for enforcement of management and funding decisions of quotaholder associations, as well as specifying voting rules and minority protection provisions. Alternatively, decisions could be enforced through voluntary contracts or by government regulation.
As with the water quality example, compliance could be based either on implementation of an approved management strategy ("diligence") or on actual performance, with fines for breaches of the standards. Similar arguments apply regarding the perverse incentives to lobby for approval of inadequate strategies if compliance is based on diligence.
Managing by Price Rather than Quantity
Figure 1 shows a simplified case of environmental costs which are not internalised to producers. MC is private marginal cost of production, and MC' represents marginal social cost ie including environmental costs of production. MB represents the declining marginal benefit of production, assuming falling prices for additional units of output'. Without any policy to internalise environmental costs, output is Q1, whereas the optimal level of production is Q*, where marginal benefits equal marginal social costs.
Figure 1
In the above discussion, it is proposed that the regulatory agency sets quantitative standards to be met by catchment management consortia or fisheries quotaholder associations. Alternatively, the agency could use a price approach, ie environmental user charges, to achieve an optimal resource allocation8. For instance, the agency would estimate P* - A (the marginal social cost of water pollution) and charge this fee for every unit of discharge. Polluters would then aim to limit their discharge to Q*, because beyond that point the cost of paying the charge exceeds the marginal benefits.
Note that if, for instance, all dischargers pay P* - A for each increment of pollution, the agency collects revenue represented by the rectangle AP'EB. The cumulative cost of environmental damage is only the triangle OEB, because the damage increases gradually. To assess a schedule of increasing fines, however, could be unfair to individuals who cause the cumulative effect to exceed the standard, but whose actions were otherwise similar to earlier or upstream actions by others. Yet to assess an "average" charge, eg of P2, would not create the right incentive, because output would then tend towards Q2, with its higher level of pollution.
Collective responsibility provides a solution to this dilemma. Since the entire CMC would be held responsible for water quality, the agency can assess a schedule of increasing fines without "misattribunon" problems. Using increasing fines, only the actual environmental cost, ie the area between MC and MC', would be collected in revenue. The CMC might still decide to charge its members P*- A for each unit of discharge, in order to ensure the right incentive for members to limit pollution. However, any excess revenue would be retained by the CMC, which could use it for whatever purposes it deemed appropriate.
The proposals for CMCs and quotaholder associations in the previous sections are in fact a combination of price and quantity approaches, in that a quantitative standard is set and fines are imposed for breaches of the standard. In this case, the fine should be greater than P*- A to accurately reflect the environmental damage caused by discharges or sea lion mortality exceeding Q*. If charges are waived as long as the standard is met, the problem of the agency collecting excess revenue is avoided. However, such an approach also fails to provide compensation for environmental damage up to the standard.
7 If prices are determined exogenously, eg in the world market, MB would be horizontal at P; ifie results of the analysis would be the same.
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