Castalia’s blog
New Zealand’s water infrastructure landscape will undergo significant changes with the introduction of the “Local Water Done Well” policy. This new policy will replace the previous “Three Waters” regime. At the heart of this transition lies an alternative water reform originally proposed by Communities 4 Local Democracy, a framework that our team at Castalia had the privilege of advising on. New Zealand’s largest party in the recently elected coalition Government adopted this framework as an election manifesto policy.
Achieving accountability and financial sustainability
Global Water Intelligence Magazine published an article in March 2024 on the challenges and opportunities presented by this reform. Some local authorities have praised the Castalia-designed reform model as it maintains the local oversight of water services. Others are concerned that the new reform could increase water tariffs by 20%. This is against the backdrop of the previous Government’s “Three Waters” regime. The regime proposed four, and later 10, regional corporations with large forecast capital expenditure. In contrast, the reform proposed by the new Government aims to strike a balance between retaining accountability to local communities and ensuring water services are delivered on a financially sustainable basis. Additionally, Local Water Done Well strives to achieve managerial, operational, and capital project sequencing efficiencies (where available).
Local Water Done Well proposes to maintain managerial and financial responsibilities under local governments. Simultaneously, the reform seeks to clarify the central government’s regulatory role, with improved enforcement to address water quality, financial performance, and environmental outcome issues. Consequently, it will require councils to develop robust plans for future capital expenditure needs. Furthermore, the policy provides local authorities with options to create viable water management configurations rather than imposing a one-fits-all approach.
Timeline for the implementation of Local Water Done Well
The first stage of this regime is expected to be signed into law in mid-2024 and allows councils to establish new council-controlled organizations to deliver water services. A second bill will be introduced in December. The bill will create a new range of financing tools and allow the creation of financially independent council-owned water providers. Councils will be able to establish joint-owned utilities or choose to remain independent based on each utility’s managerial and financing needs. As Castalia’s CEO David Ehrhardt said to GWI, the new policy is “all about options that local authorities can choose from, not about forcing solutions on them.”
Our Managing Director, Andreas Heuser is the Chair of the Government’s Technical Advisory Group (TAG). The TAG will advise the Government in preparing the policy and legislation to implement Local Water Done Well.
Download GWI’s article here: New Zealand Utility Reform Struggles with Cost of CAPEX.pdf
Castalia and The University of Colorado collaborated on a research project to assess how voluntary carbon markets for water can help reduce emissions from the water sector while contributing to SDG 6, ‘safe water and sanitation for all’. The work was commissioned by The Sustainable Markets Initiative, WaterAid’s Resilient Water Accelerator, HSBC, VCMI, and Gold Standard.
As part of the study, we assessed the potential of emissions reduction in various water sub-sectors. According to our findings, if we maximize the use of voluntary carbon markets in the sub-sectors with the highest verifiable potential for emissions reductions, we could achieve over 445 million tons of CO₂e emissions reduction annually. This could yield $1.7 billion in carbon revenues annually. Furthermore, this could potentially mobilize an additional $10.6 billion over the next 10 years for water sector investment.
The untapped potential of voluntary carbon markets for the water sector
In 2021, the global voluntary carbon market transacted 500 million tons of CO₂e. Materializing the full potential for voluntary carbon credits from water services could almost double the size of the global voluntary carbon market.
Using voluntary carbon markets for water also has co-benefits, such as increasing access to water, boosting water sector resilience, improving sanitation, and preserving aquatic ecosystems.
To encourage the collaboration of relevant stakeholders to support WaterAid’s Resilient Water Accelerator Initiative, Castalia’s Chief Executive, David Ehrhardt, presented the potential of voluntary carbon markets to reduce emissions in the water sector during the COP 28.
You can access Castalia’s COP 28 presentation here: Voluntary-Carbon-Markets-for-the-Water-Sector
References
1. GWI. “Mapping Water’s Carbon Footprint,” 2022; Page 26. Greenhouse Gas Protocol. “GHG Protocol Agricultural Guidance Interpreting the Corporate Accounting and Reporting Standard for the Agricultural Sector.” https://ghgprotocol.org/sites/default/files/2022-12/GHG%20Protocol%20Agricultural%20Guidance%20%28April%2026%29_0.pdf
2. McKinsey. “Agriculture and Climate change,” 2020; Page 6. https://www.mckinsey.com/~/media/mckinsey/industries/agriculture/our%20insights/reducing%20agriculture%20emissions%20through%20improved%20farming%20practices/agriculture-and-climate-change.pdf
3. Emission from aviation and maritime transport sector is around 938.14 million tons CO₂e (2020). Ourworldindata.org. “Greenhouse Gas Emission by Sector, World.” https://ourworldindata.org/emissions-by-sector
4. UN Water. “WHO/UNICEF Joint Monitoring Program for Water Supply, Sanitation and Hygiene (JMP) – Progress on household drinking water, sanitation and hygiene 2000 – 2020,” 2021. https://www.unwater.org/publications/who/unicef-joint monitoringprogram-water-supply-sanitation-and-hygiene-jmp-progress-0.
“Local Water Done Well” policy is set to replace the “Three Waters” regime in New Zealand. The policy is based on an alternative water reform put forth by “Communities 4 Local Democracy”. Castalia advised Communities 4 Local Democracy to assess alternative options to ‘Three Waters’.
Recently, the New Zealand Herald published a column written by Andreas Heuser, Managing Director at Castalia, about the Local Water Done Well policy.
Local Water Done Well, key components
Mr. Heuser outlines the key components of the Local Water Done Well policy and emphasizes its potential to address financial challenges within the water sector. Additionally, he dispels misunderstandings, particularly regarding the separation of balance sheets. He also explains the policy’s focus on decentralization and community involvement.
The proposed framework involves creating separate corporatized water service providers (WSPs) owned by individuals or groups of councils. Moreover, these WSPs would maintain independent accounts, subject to regulation by the Commerce Commission to ensure efficient expenditure. This approach has been tested globally and has been successful in other utility sectors. Markedly, the approach aims to make WSPs credit-worthy entities, attracting capital and positively influencing credit ratings.
Furthermore, Heuser addresses concerns about financing challenges and explains the suggested mix of standard utility financing and targeted government support. The new policy encourages a case-by-case approach, with the government providing technical assistance to WSPs or councils facing financial challenges. Innovative solutions, such as a Ratepayer Assistance Scheme, revenue bonds, conventional LGFA finance with relaxed debt limits, and Crown support with equity finance, could be explored based on local needs and preferences.
Lastly, highlighting the importance of local involvement, Heuser stresses that communities should play a pivotal role in overcoming challenges. The column underscores the flexibility of Local Water Done Well, allowing local communities to shape its design based on specific circumstances. Mr. Heuser presents the example of Auckland. There, tough choices, like separating Watercare from Auckland Council, are best decided by Aucklanders themselves.
Mr. Heuser highlights the potential of the policy to be a major advance in New Zealand’s water services. Castalia looks forward to supporting this proven and adaptable method.
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