Market Economics - Memo

Latest news & views from market economics / April 2018

NZTA Research

NZTA has recently published a joint research paper by M.E, Golder Associates and TDG that examines the impacts of automation and new technology on the location of employment and land-use patterns, and the consequent implications for the transport sector.

Alcohol Research

M.E was commissioned by HPA to carry out research on New Zealand's Alcohol Supply and Demand Structures.  Recently published, this report examines patterns of alcohol purchasing  by licence type and category, demographic characteristics of cardholders, and the timing, frequency and $ value of purchasing at licensed venues.  

Check out previous newsletters

To view previous M.emo articles click here

Not Subscribed?

Click here to subscribe to M.emo.


 

Recent Decisions & Economics - Part 1

"Most Prized" Volcano Protected by Environment Court Decision

As well as protecting one of Auckland’s most well preserved volcanic cones – Ngā Kapua Kohuora / Crater Hill, the recent Environment Court decision has provided strong guidance on the concept of economic efficiency in the RMA context.

Environment Court offers strong guidance on Economic Efficiency

M.E has long argued in RMA hearings that economic assessment should be applied holistically, to encompass the range of resources which the community values, and not be limited to just commercial markets.

There has been considerable opposition from “purist” economists, advancing their view that the “economic wellbeing” of the RMA can concern itself only with commercial market values and the monetisable sectors. Their standard position is that matters such as the biophysical environment or social effects are “non-economic” and should not be part of an economic assessment. 

We disagree - as shown in many statements of evidence to the Environment Court and in other forums. Our approach is that the economy includes all market and non-market transactions and values. This is especially relevant in the RMA context where decisions and actions on resource management need to take into account “economic, social and cultural” and natural and built resources all at the same time, and with understanding of how these dimensions inter-relate and interact. They are not separate bits to be examined piecemeal.

It is especially pleasing to see endorsement for this approach in two important decisions from the Environment Court.

The latest is last week’s decision of the Environment Court on Ngā Kapua Kohuora (Crater Hill) and Pūkaki (1) that provides strong guidance on the Court’s views on economic efficiency, and the manner in which economic, social, environmental and cultural matters may be taken into account for resource management decisions.

The decision also offers some clear views on urban economics, land markets and housing capacity in the light of Auckland’s Operative (in part) Unitary Plan, and on the role of the National Policy Statement on Urban Development Capacity (NPS-UDC) - matters to be addressed in the next Memo.

Economic Efficiency as Net Social Benefits

The Ngā Kapua Kohuora (see photo) decision follows the 2017 decision on Mackenzie Districts’ Plan Change 13 which has put in place protection of landscape and environmental values in the MacKenzie Basin. The two cases had a number of similarities, in terms of the trade-offs between intensification of land use and the effects on environmental, cultural and social values. 

In the Mackenzie case the intensification related to farming activity and especially irrigation, and potential impacts on landscape values and sensitive natural environments. In the Auckland case, the intensification related to applying urban zoning rather than rural zoning and enabling the construction of around 800 dwellings on a volcanic cone and Outstanding Natural Feature (Ngā Kapua Kohuora / Crater Hill). Auckland Council had rejected the Independent Hearing Panel’s recommendation to zone the area for urbanisation, and landowners had appealed.

Both decisions have provided some clear guidance on economic assessment, and its scope to include social, cultural and environmental matters together with business and government activity.

In both cases, M.E (2)  presented evidence which adopted the systematic analytical approach which is common in economics - to identify and evaluate relevant outcomes, based on understanding of conditions and core processes in the economy and the natural environment – on the basis that this is consistent with Section 32 of the RMA with its requirements to examine benefits (positive effects), and costs (adverse effects) of likely outcomes, from social, cultural economic and environmental perspectives. The approach applies a wide scope to the application of “economics” to the RMA. It does not restrict the economic assessment to being just about business activity, or government or household activities, but rather takes into account the fundamental inter-relationships between people activity and the biophysical environment and the social and cultural context within which such activity must take place. 

In the Mackenzie decision, the Court stated [457]:

Section 32 approaches the question of efficiency by requiring analysis of three components of efficiency:

a) the benefits and costs of the proposed provisions;
b) the benefits and costs of the alternatives (in this case the status quo);
c) the risks of acting or not acting.

The decision upheld the Council’s approach to identify intensification (including irrigation) as a Restricted Discretionary Activity and to assess applications to intensify farming activity on a case-specific basis. The Court in its decision (3)  specifically recognised the usefulness of economic methods being applied to non-market values – that is, externalities such as environmental and cultural effects can be considered from an economic perspective. The decision recorded that:

“producers’ costs and surpluses are only part of the costs and benefits which need to be taken account of” [338]. 

The Court defined economic efficiency as being the comparison of the net social benefits of an objective with the next best alternative:

“The principles include the requirement in section 7(b) RMA to have particular regard to the efficient use of natural and physical resources…it is sufficient to record. ...that economic efficiency involves a comparison of the net social benefits of the objective in question with the social benefits of the next alternative...” [458].

In the Ngā Kapua Kohuora/Crater Hill decision, the Court referenced the Mackenzie decision, and added some further guidance. 

It applied a similar definition of economic efficiency as being:

“assessment of net social benefits in achieving specified objectives is at the heart of any assessment of economic efficiency". [356]

It supported a comprehensive approach, and noted that taking all relevant matters into account:

“…is a basic principle of assessment of social costs and benefits” [352].

The Court agreed with the M.E view that “..these [social, environmental and cultural] resources have value to the community, because they have value they’re part of the decision-making process, and the decision-making process determines land use so that’s absolutely in my area, …and I’m drawing on the expertise of others.” [356]

The Court further stated that assessment relating to the objectives of the AUP does come within “the proper scope of … an economist…. both at law and in economic theory.” [356] 

“We accept that view and recall that this is a matter to which particular regard should be had under section 7(b) RMA in addition to being a ‘procedural requirement’ under section 32. We reiterate, because of its importance, that then it needs to cover all of the social benefits and costs of achieving the relevant objectives. If they cannot be quantified then they should at least be identified so that a qualitative assessment can be made.” [357]

The Court then recorded its “Conclusion as to efficiency” as being based on the “net social benefits” of the status quo [358].

The Court further identified that both use and non-use values of resources must be taken into account, that “non-use values have considerable importance in this case”, and that the “identification of both use and non-use values gives effect to that part of the purpose of the RMA contained in section 5(2)(a) ….sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations.” [316].

Some Implications

This guidance is quite simple and clear - that economic efficiency from the RMA perspective should be holistic, taking account all relevant matters including environmental, social, cultural resources valued by society, as well as business and government activity, and assessing these in terms of social benefits and costs.

Over the years, there have been a number of claims that such matters are “non-economic” and should not be part of an economic assessment. We disagree. Our view is that the economy is holistic and encompasses the biophysical environment, all business, government and household activity, social matters and cultural matters. These are all inter-related, and sound decisions on resource management need to take all of these into account. The RMA specifically recognises this – at 5(2) it refers to people and communities providing for “their social, economic, and cultural well-being” while ”..avoiding, remedying, or mitigating any adverse effects of activities on the environment.” 

Perhaps now, with two decisions offering such clear direction from the Environment Court, assertions that aspects of resource management are “non-economic” will no longer find their way into “economic” evidence.

In the meantime, we are having a celebratory drink.


For further information or comment on this article, please contact Douglas Fairgray (doug@me.co.nz or 09 915 5514)

Notes:

(1) Self Family Trust v Auckland Council, Decision No: [2018] NZEnvC 49

(2) EIC Dr Douglas Fairgray Self Family Trust v Auckland Council, Decision No: [2018] NZEnvC 49; EIC Dr Douglas Fairgray Federated farmers of New Zealand Inc (Mackenzie Branch) v Mackenzie District Council [2017] NZEnvC 53

(3) Federated farmers of New Zealand Inc (Mackenzie Branch) v Mackenzie District Council [2017] NZEnvC 53



   
 

Market Economics Ltd
Level 5, 507 Lake Road,
Takapuna 0740, Auckland, NZ
www.me.co.nz

© 2018 Market Economics. This email was sent to {tag_recipientemail} by Market Economics. If you wish to no longer receive M.emo, please click to {tag_unsubscribe}. If you have difficulty viewing this email - please {tag_viewinbrowser}