NZIER report on compensation for transmission infrastructure
NZIER report on compensation for transmission infrastructure
NZIER report on compensation for transmission infrastructure
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4. Efficiency: Valuing easements<br />
Central to the issue of efficiency is how to value or price easements when sales<br />
prices are influenced by the opti<strong>on</strong> of compulsory purchase (and in<strong>for</strong>mati<strong>on</strong><br />
asymmetry). Generally prices in capitalist ec<strong>on</strong>omies are determined by free market<br />
transacti<strong>on</strong>s. If some<strong>on</strong>e wishes to purchase a good or service they find a willing<br />
seller and the two parties negotiate a price. Either party can refuse to enter into the<br />
transacti<strong>on</strong> if the price is too low (or too high). Price, or the market value of a good or<br />
service, is thus determined by willing buyers and sellers. This is the basis <strong>for</strong> the vast<br />
majority of land and other transacti<strong>on</strong>s around the world.<br />
The market <strong>for</strong> easements, <strong>on</strong> the other hand, is made up of, at times unwilling,<br />
m<strong>on</strong>opoly sellers and a m<strong>on</strong>opolist buyer with the power to <strong>for</strong>ce sales. This and the<br />
lack of transparency around previous sales, severely c<strong>on</strong>strains price signals.<br />
Geographical factors and the requirement that transmissi<strong>on</strong> lines are linear<br />
determine where transmissi<strong>on</strong> lines can practically be built. It would be prohibitively<br />
expensive if not impossible to build all transmissi<strong>on</strong> lines al<strong>on</strong>g-side public roads<br />
rather than over farmland, <strong>for</strong> example. Nor would it be feasible to criss-cross lines<br />
over private land according to which landowners are most willing to sell easements.<br />
Typically, as discussed in the literature review, the different costs imposed by<br />
transmissi<strong>on</strong> <strong>infrastructure</strong> are c<strong>on</strong>sidered separately and summed to estimate the<br />
value of an easement. Careful c<strong>on</strong>siderati<strong>on</strong> needs to be given to calculating fully the<br />
costs of all inputs, including land, in order <strong>for</strong> transmissi<strong>on</strong> to be allocatively and<br />
dynamically efficient. Although running all lines over l<strong>on</strong>ger distances over less<br />
productive land may be impractical, there may be occasi<strong>on</strong>s where these are the<br />
more efficient opti<strong>on</strong>s.<br />
4.1 Calculating the cost of easements<br />
As argued throughout this <str<strong>on</strong>g>report</str<strong>on</strong>g> accurate appraisal of easement costs is crucial <strong>for</strong><br />
efficient placement of transmissi<strong>on</strong> <strong>infrastructure</strong>. Without the benefit of a price<br />
setting market to value the stream of expected future benefits, including sale price<br />
(discounted to present values) easement values need to be estimated. This is difficult<br />
to do accurately, not least because different people place different values <strong>on</strong><br />
separate n<strong>on</strong>-productive aspects of land, such as views or anticipated future sales<br />
value.<br />
Standard practice <strong>for</strong> pricing easements, as identified in the literature, includes<br />
c<strong>on</strong>siderati<strong>on</strong> of:<br />
Land value<br />
Easement area<br />
Operati<strong>on</strong>al costs<br />
Disturbance<br />
Externalities<br />
<str<strong>on</strong>g>NZIER</str<strong>on</strong>g> – Compensati<strong>on</strong> <strong>for</strong> transmissi<strong>on</strong> <strong>infrastructure</strong> 29