The Demise of Effects-Based Resource Management: What Went Wrong with Internalizing the Externality?

13 February 2023
By Kevin Counsell

In the February issue of Policy Quarterly, Associate Director Kevin Counsell examines the demise of effects-based resource management in New Zealand. A core principle underlying the Resource Management Act 1991 (RMA) is that of effects-based resource management: managing the effects of activities on the environment, rather than the activities themselves. In economics parlance, this has strong links to the concept of internalizing the externality, where the costs or benefits of activities are borne by those undertaking the activities, rather than by third parties. When externalities are internalized, society’s well-being is improved.

However, the widely held view is that the RMA has not made society any better off. This begs the question: did something go wrong with the approach of internalizing the externality? As Mr. Counsell explains, a contributing factor was the poor implementation of the internalization principle in the RMA, particularly the limited use of price signals, high transaction costs, and the poor application of cost-benefit analysis.

Mr. Counsell notes that the replacement for the RMA, the Natural and Built Environment Act (NBEA), proposes to shift the focus away from an effects-based approach to an outcomes-based one. While the NBEA could be used to better implement an internalization principle, its proposed drafting does not always attempt to do so, and its explicit shift to an outcomes-based approach is likely to make it even more difficult for externalities to be internalized.

Counsell, Kevin (February, 2023). “The Demise of Effects-Based Resource Management: What Went Wrong with Internalizing the Externality?” Policy Quarterly (19/1) Victoria University of Wellington