Session 19. Applying Environmental Policy Instruments: the Case of Fisheries

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1 Environmental Economics and Development Policy World Bank Headquarters Washington DC Session 19 Applying Environmental Policy Instruments: the Case of Fisheries John A. Dixon Kirk E. Hamilton The World Bank 4-1

2 Renewable Resources: green and blue sectors Should we expect the uncontrolled private market to lead to the socially efficient rate of extraction for fish and forest? PERVASIVE PROBLEMS Imperfectly defined property rights Forests and fish are often open access resources Low incentives for managing resource for future use Externalities Positive benefits generated by resources not captured in market prices 4-2

3 Policy Instruments: green and blue sectors Classes of policy instruments Using Markets Creating Markets Environmental Regulations Engaging the public Environmental taxes on emissions, inputs or products User fees for natural resources or services Property rights and decentralization Tradable permits and rights Standards Bans Quotas Information disclosure Public participation Performance bonds/depositrefund Targeted subsidies International offset systems 4-3

4 Growth rate of a fish population Net Growth Rate MSY Stock Decrease: Harvest>Net Growth Sustainable fish yield: Harvest=Net Growth Stock Increase: Harvest<Net Growth Extinction Stock at MSY Carrying Capacity Fish Stock 4-4

5 The economically efficient level of fishing effort (1) Total Cost & Revenue A Costs Revenues: PxQ Fishing Effort Eo Emsy Eoa Eext 4-5

6 The economically efficient level of fishing effort (2) Total Cost & Revenue B A Costs Revenues: PxQ Eo E* Emsy Eoa Eext Fishing Effort At Eo, the effort level is zero but the stock size is at its largest; Eext entails maximum effort but extinction of the stock; Emsy is the effort level resulting in a maximum sustained yield; E* is the effort level maximizing economic rent; and Eoa is the open access level of effort exhausting the economic rent 4-6

7 Fisheries: Policy Instruments (1) Fishing Quotas Quota on number of vessels Quota on catch Total Allowable Catch (TAC) Fishing bans Fishing Standards Limited fishing seasons Input restrictions Restrictions on type of equipment/boats 4-7

8 Fisheries: Policy Instruments (2) THE PROBLEM WITH CATCH QUOTAS The Race for fish Economic vs. Biological Overfishing Harvest limited but rents still dissipated Can be expensive to monitor and enforce 4-8

9 Fisheries: Policy Instruments (3) PROBLEMS WITH TRADITIONAL FISHING REGULATIONS Efforts and costs increase (without necessarily reducing catch) Fishermen respond to limits on boat numbers, equipment, season length by increasing effort in other ways Industry becomes overcapitalized and uncompetitive Rents are dissipated Can be expensive to monitor and enforce 4-9

10 Fisheries: Policy Instruments (4) Price Instruments USING MARKETS Taxes on inputs to effort (equipment, vessels) Taxes on ouput (fish landings) In theory can lead to efficient harvesting, but problems in practice: Difficult to define right unit of effort for taxation Difficult to monitor and enforce Political opposition to taxing fishermen 4-10

11 Fisheries: Policy Instruments (5) CREATING MARKETS AND PROPERTY RIGHTS Property Rights Exclusive Economic Zones (EEZ, 200 mile limit) Individual Transferable Quotas (ITQs) Allocates to individuals the right to harvest a specific quantity of fish: Qi Quotas are freely transferable Total number of quotas equals scientifically determined TAC: SQi=TACC Quotas may be expressed in tonnage or proportional terms Proportional quotas can facilitate adjustments to TAC 4-11

12 Fisheries: Policy Instruments (6) Total Fish Stock Total Allowable Catch, TAC (the total quantity that can be sustainably taken each year) Allowance for non- Commercial fishing (recreational customary fishing) Total Allowable Commercial Catch, TACC (the total amount of fish the commercial sector is allowed to catch each year Individual Transferable Quotas, ITQs (individual fishers purchase quota, which is the right to harvest for sale a proportion of the TACC) 4-12

13 Fisheries: Policy Instruments (7) CHARACTERISTICS OF AN ITQ SYSTEM Protects fish stocks by: Setting cap on harvest level SQi=TACC Improves economic efficiency by Creating incentives for managing rather than mining resource Creating incentives for self-compliance by industry participants Allocation of quotas is a political/distributional issue Quotas usually grand fathered but could be auctioned 4-13

14 Fisheries: Policy Instruments (8) RESULTS OF NEW ZEALAND S ITQ PROGRAM Inshore and deep-water fisheries which were near commercial collapse in mid 1980s now show healthy recovery Commercial operations have prospered with quotas as assets on balance sheets 4-14

15 Fisheries: Policy Instruments (9) RESULTS OF NEW ZEALAND S ITQ PROGRAM (cont d) Reduced race for fish and redirected investment towards improving harvesting efficiency and adding value to harvest Fishing industry shares resource management in cooperation with government Indigenous Maori people are involved in traditional and commercial fishing 4-15

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