By Gareth Morgan*
Simon Bridges appearance on Campbell Live on Monday did little to quell the disquiet about offshore drilling.
It’s not that offshore drilling is bad per se – there are clearly economic benefits to be had – but we have to get the balance between economy and the environment right.
The Government doesn’t have a great track record there, because we have leapt ahead with oil and mineral exploration without anything like parallel thinking on a strategy around management of our oceans.
First, some background. Most (95%) of New Zealand is underwater.
We are actually an oceanic superpower – by some counts we have the fourth biggest Exclusive Economic Zone (EEZ – the ocean area where we can use the resources) in the world at 4 million km2. Our recognised extended continental shelf (ECS – where we can use the seabed) juts out another 1.7m km2 beyond that.
We occupy just a slither of our overall territory and two implications are obvious:
(a) We have a heap of territory out there that we could be accessing for its resources – fish, oil and minerals; and
(b) We have a responsibility to manage this vast and unique piece of ocean (our oceans are thought to hold around 10% of the total global marine biodiversity) well to ensure environmental downside from exploitation doesn’t outweigh any economic benefits.
The absence of any coherent oceans policy or Minister suggests we aren’t really across either the potential or its management as yet.
Indeed we have a pretty fragmented approach to matters marine with responsibilities falling across a suite of ministries – Ministry for Primary Industries, the Environmental Protection Agency, Regional Councils, Department of Conservation, Ministry for the Environment, Ministry of Economic Development, and Maritime New Zealand.
With such a gaggle of agencies involved you can bet your bottom dollar that things fall through the cracks.
Here’s just one example; no trawl areas have been established to protect the ocean floor from fishing. One of those areas now has a prospecting permit issued for phosphate! Incoherence in the extreme.
The current government sees the mind-boggling potential in our massive EEZ.
That is why they are really keen to see the economic benefits from the resource potential of our ocean and seabed stepped up – and we know there is high interest in oil and gas exploration in the Great South Basin, offshore Taranaki, and off the east coast of both the North and South Islands.
At the moment the activity in our EEZ nets the Government $100m in royalties, but the extent of overall economic activity out there is tiny relative to the potential.
This understandingly, has the economic ministers salivating, a potential bonanza awaits.
Before we start drilling we have to get a good grip on managing this vast ocean and seafloor resource.
It’s no longer tenable to ignore it simply because we can’t see it from standing on the peaks of the Coromandel. Indeed if we were to adopt an approach analogous to what we do with land above sea level, we would zone it.
This zoning would bring many economic and environmental improvements, including:
- reduced clashes between different ocean users such as recreation, fishing, aquaculture, mining, electricity generation and oil drilling;
- allowing for some areas to be set aside as marine protected areas. These are an insurance policy against the other stresses we place on the environment. Currently less than 1% of our ocean is protected;
- setting environmental standards that are applicable to different zones;
- ensuring that we earn our 100% Pure reputation, and improving the sustainability credentials of our export products.
- making the spatial rights tradable so that ocean can be put to the best use;
- providing more long term certainty for businesses, so that they are not at the mercy of political whim.
Once we have the area zoned, commercial ocean users should also face charges, just as businesses must pay council rates on land.
Then commercial ocean users would fund the maintenance of the zones’ conservation and protection.
So why don’t we do this?
Zoning the ocean takes time for public consultation, and monitoring environmental standards is expensive.
We are about to see this zoning approach trialled in the Hauraki Gulf – but without a charge on commercial ocean users to fund it, it is slow going. It remains to be seen how the process will work and what the Government will do with the outcome.
Most self-interested corporates (like oil companies) argue that the environment management is a public good, and thus argue should be paid for out of general taxes, that user pays doesn’t apply in their case. They point out that the mere fact that they are operating here at all generates benefits.
Of course drilling will bring economic benefits – including royalties, tax revenue and jobs.
However, let’s not get too excited – the royalties and corporate tax revenue are calculated as a percentage of profit. We have seen that multinationals are adept at shifting their profit around the world to ensure they pay the least tax possible.
This is legal and fairly simple to do – just burden up their New Zealand operation with debt, so that the revenue here is written off against the interest costs. To hear Simon Bridges waxing lyrical about 42 cents in the dollar of profit is galling to anyone with even a smidgeon of economic literacy.
Royalties should be paid as a percentage of revenue instead of profits – that is foreign investment 101, which even all undeveloped countries know these days.
Furthermore if oil drilling (or any business operating in our ocean for that matter) is really that economic then those businesses should be stumping up for all the costs needed to manage our oceans properly.
There’s a precedent for this. Land owners are charged rates for all the amenities that support their property investment.
A system of rates levied on users of ocean resources would give Regional Councils (or the Environmental Protection Agency in the EEZ) the funds with which to set standards and monitor them, to look after the oceans properly.
In fact, Regional Councils already have the power to charge ‘coastal charges’; a similar idea. Ocean zoning, matched by charging the owners of exploitation rights, is a potential win-win for both the environment and commercial ocean users.
The final question the Government faces is what it will do with the extra revenue raised by all this economic activity in our ocean. As pointed out above, some of the money needs to go into ensuring our ocean is properly monitored and managed.
The rest should not be squandered on super and healthcare.
Norway’s approach is one to be emulated – as it has plundered its stocks of oil it has built up an investment pool which helps the Government pay for its generous social programmes.
Change is never nice, particularly when we are talking about a common resource like the ocean where everyone thinks they can do whatever they like.
However, the fact is that this comfortable status quo is slowly degrading our ocean.
The government should be setting the example in terms of oceans management best practice, not demonstrating such a craven desperation for foreign investment that Ministers responsible are effortlessly made to look as foolish as Mr Bridges was.
Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his blog garethsworld.com and is reprinted here with permission.