He Tirohanga Mokopuna: 2016 Statement on New Zealand's Long-term Fiscal Position

New Zealand is richly endowed in natural resources. These include both non-renewable resources (such as soil, coal, oil, gas, and minerals) and renewable resources (such as forests, fish, and water). These resources, together with ecosystem services[111] – for example, climate regulation, flood and disease regulation, water purification, nutrient cycling and soil formation – make up New Zealand's natural capital. In addition to underpinning the country's primary production and attracting a large number of tourists, the environment provides significant opportunities for recreation and is integral to our cultural identity.

Some aspects of New Zealand's natural capital are in decline.[112] The goods and services provided by natural resources continue to be undervalued in many consumption and investment decisions, as they can be difficult to accurately identify and quantify. This section notes particular pressures on fresh water, soil, and biodiversity – and the challenge of climate change – but does not attempt to be exhaustive. Rather, outlined are important concepts and particular challenges governments and societies face in managing New Zealand's natural resources in order to maximise benefit from them now and in the future.

The direction of resource management

The management of New Zealand's natural capital is improving, in recognition of its importance to the economy and living standards. There is a growing focus on concepts such as limits, allocation, resilience, and investment. The challenge of managing the country's natural capital to maximise living standards is no easy task given competing and evolving goals, complex interdependencies, and shifting scientific understanding.

'Limits' can play an important role in ensuring that New Zealand does not exceed biophysical thresholds or irreversible tipping points in an ecosystem. In some circumstances, the setting of more conservative limits or targets may better reflect societal and cultural values, or possible economic benefits, such as obtaining a premium from environmentally-friendly products. If there is uncertainty around where a tipping point is, a precautionary approach would ensure a buffer is maintained between the amount of a stock used and the estimated tipping point. Albeit, uncertainty of environmental impacts makes this difficult in practice. Exactly who should set limits on use (e.g. governments, iwi, businesses, communities and individuals) will differ depending on the resource type in question.

Within the agreed limits, resources should be allocated to the users who will create the highest benefits for society. Greater long-term benefits will be possible if users are incentivised to improve their productivity over time, and resources can be moved to higher value uses as they arise. In some instances, the best course of action may be preservation of a resource, including because of its value to economic growth. For example, natural landscapes and unique biodiversity can attract tourists; trade benefits may be possible from protecting the country's 'clean, green' image; and new technologies could be adopted that increase or maintain productivity while protecting the environment. For finite, exhaustible resources – such as petroleum, coal and minerals – the aim should be to use these assets at a rate and in a manner that will provide the greatest contribution to living standards as a whole, over time.

There are opportunities to restore natural resources that have been degraded over time, or at least reduce the rate of degradation.This would entail short-term costs, but in many cases, these costs should be seen as an investment in New Zealand's natural resources, and should be weighed against the expected long-term benefits. Necessary interventions may include requiring users to cover the costs to society of their activities (e.g. to internalise the downstream costs of pollution), investing in infrastructure (such as wastewater and stormwater infrastructure), and clean-up initiatives (such as pest control or lake weed removal). This requires determining how costs should be distributed and how to smooth the transition, including by encouraging innovation and adoption of new technologies.

Resource use decisions should also take into account society's desired level of resilience to natural hazards(including droughts, storms, sea-level rise, earthquakes and biosecurity incursions).Such events or changes can have significant economic impacts (e.g. the Treasury estimated that the 2013 drought reduced real GDP by 0.7 percentage points).[117] The resilience of government finances can also be tested if weaker economic growth reduces revenue and government assistance is sought for those adversely impacted. Planning for environment-related shocks can reduce the impacts on individuals, communities, industries, and the environment. This is becoming increasingly important as the growing complexity of societies makes the consequences of shocks more wide-ranging and difficult to predict.[118] Particular attention should be given to those elements of the economy and environment that are less able to adapt and are more vulnerable to shocks – such as water resource allocation, biodiversity, and infrastructure – and to identifying any others.