Sang Sheng

The economy of Iceland has greatly depended on gathering and utilizing the resources of the ocean, due to its geographical location, nature and topography. The Icelandic fishing industry has been a pillar industry of the national economy. According to FAO, “export revenue of Iceland from fish and fish products were equal to 42 percent of merchandise exports, roughly 28 percent of total exports and 7 percent of GDP in 2007”. While establishing that fishing is an integral part of the economy, the report also points out that the health of the industry, and thus its impact on the economy poses a concern. Overfishing presents a crisis that must be addressed. So, there is no doubt that Iceland has to establish the most efficient fisheries management system to restore and maintain healthy and diverse fish populations. In this blog, we will discuss about the individual transferable quota (ITQ) system in Iceland.

What is the Individual Transferable Quota system?

ITQ is the system used by the government to control the quantity of fish so that it can prevent excessive depletion of fish resources. In Iceland, the Ministry of Fisheries and Agriculture issues fishing regulations for each fishing year (usually from Sept 1 to Aug 31), and the participants in the fishing activities are guaranteed to have some share of the catch. “The quotas represent shares in the national total allowable catch (TAC), and they are permanent, perfectly divisible and fairly freely transferable.” That is to say, if some fishing participants do not reach their quota, they can transfer or sell the remainder of their unused quota to other participants. Therefore, as defined, the ITQ system is a kind of cap-and-trade system, which is a common as a carbon policy instrument.

How does the Individual Transferable Quota system work?

Before the implementation of ITQ system in Iceland, there were some other fisheries management systems that were applied to control fishing activities; these management systems are employed in conjunction with the ITQ system now. With the introduction of ITQs in 2002, a small annual charge for fishing rights allocation (licensing) was enforced, which increased the requirements for entry, and any vessel with a license was allocated a certain quota each year based on its past catch histories. As it is mentioned before, the quotas are the shares in the TAC, which are permanent, totally divisible and freely transferable. However, in order to prevent over-holding of quotas and to ensure the employment, some restrictions are designed: 1) “no vessels may purchase quotas that are clearly excessive of what the vessel can harvest”, 2) “any vessel that does not harvest 50% of its annual catch quotas in two subsequent years will lost its permanent quota share”, and 3) “fishing rights cannot be stripped from local areas.”

As for setting of TAC, it is a cooperative job between biological scientists from the Marine Research Institute (MRI) and the social economical analysts from Ministry of Fisheries. It usually takes two steps: first, the TAC is suggested by MRI, and then the Ministry of Fisheries makes the final determination based on the suggestion. “When the ITQ was first introduced in demersal fisheries, the final TAC for cod determined by the Minister was usually higher than recommended by the MRI because the adverse effects on the economy had to be taken into account”. Since 1995, a new catch control rule was adopted, which sets cod TACs at 25 percent of the fishable biomass (naturally changes over time). “Setting the TAC as a fixed percent of biomass has focused discussions on the estimate of fishable biomass, removing the TAC rule from controversy”. “In 2000, this rule was amended so that the difference in the TAC for cod between two continuous years should not exceed 30000 MT in order to stabilize the harvesting sector.”

The ITQ system is well implemented and monitored by different government agencies. For instance, the issues of commercial fishing permits is implemented by The Fisheries Directorate, which “allocates catch quotas to Icelandic fishing vessels, tracks quota transfers between vessels, and checks that vessels do not fish in excess of their”. “Licensed operators, hired by port authorities, weigh and record catch, transmitting catch data to the directorate twice daily by computer. While at sea, vessels can be boarded by the Coast Guard to monitor catches and fishing gear.”

The ITQ system also has clear rules at discarding level. According to the Statement on Responsible Fisheries in Iceland, it is ruled that “collecting and bringing ashore any catches in the fishing gear of fishing vessels is obligatory and discarding catch overboard is prohibited and such conduct is subject to penalty according to law”. The reason for the strict rule is that discarding of catches leads to higher death rate of fish and waste of effort.

The effect of the Individual Transferable Quota system

The ITQ system in Iceland has been applied for over 20 years, since its introduction in 1991. There are both some benefits and drawbacks to the system. One of the concerns surrounding the implementation of ITQs is the practice of discarding. Despite clear rules of discarding, the rational choice for fishing participants is to discard lower valued fish to maximize the profit under the limited quota, which leads to the increase of death rate of lower valued fish, like the Icelandic Demerol fisheries. Some other concerns, such as the share allocation, the effectiveness of the trading market and the administrative costs of incurred by the government, are among some of the drawbacks of the ITQ system. Despite the concerns and controversies, the outcome of the ITQ system is very promising, since its implementation has contributed to the improvement of economic efficiency and to the ecological sustainability in the Icelandic fishery industry (which were the initial goals of the policy). As the fishing participants can receive a certain share of ATC, they would rather compete for quality of their catch than for the quantity of their catch. In addition, transferable shares make it possible for inefficient fishing participants to sell their quotas than use them. These implies that these quotas lower the waste of effort and minimize the costs of fishing. As a conclusion, the results discussed above are generally positive, which indicates that ITQ systems, to some extent, can be effective tools for efficient and sustainable fisheries management.

Reference

1.Iceland Ministry of Fisheries and Agriculture. INDIVIDUAL TRANSFERABLE QUOTAS. Retrieved on 21st March, 2014 from:

http://www.fisheries.is/management/fisheries-management/individual-transferable-quotas/

2.Iceland Ministry of Fisheries and Agriculture. STATEMENT ON RESPONSIBLE FISHERIES IN ICELAND. Retrieved on 21st March, 2014 from:

http://www.fisheries.is/management/government-policy/responsible-fisheries/

3. Bonnie Alter. Iceland is the Success Story of Sustainable Fishing. Retrieved on 21st March, 2014 from:

http://www.treehugger.com/corporate-responsibility/iceland-is-the-success-story-of-sustainable-fishing.html

4. Liu Xinshan. (2000): Implementation of Individual Transferable Quota system in Fisheries Management: The case of the Icelandic Fisheries.

5. James N. Sanchiricoa, Daniel Hollandb, Kathryn Quigleyc, Mark Finad (2005). Catch-quota balancing in multispecies individual fishing quotas.

6. Arnason, Ragnar. (1993): “The Icelandic Individual Transferable Quota System: A Descriptive Account.” Marine Resource Economics. VIII No. 3 201-18.

7. OEDC (2011): “Development of the individual transferable quota system in Iceland. ” Fisheries Policy Reform: National Experiences, OEDC publishing

8. Tietenberg, Thomas. (2011). Environmental & Natural Resource Economics 9th Edition. New Jersey: Pearson Education, Inc.,

As the economy of the world has increased sharply, climate change has become an extremely serious problem facing the world today, especially the global warming. “From devastating storms and warmer winters to longer summer droughts and forest fires, the impacts are being felt right here in British Columbia.” As we can see, there are so many bad consequences of global warming that have greatly impact on the environment, the economy and our generation. According to the Intergovernmental Panel on Climate change, “earth’s climate is changing because of human activities. The effects will continue to worsen if no action is taken”. So, the B.C. Government decided to implement the revenue neutral carbon tax in 2008, and this carbon tax keeps implemented till now.

What is a Carbon Tax?

As defined, the carbon tax is “a tax based on greenhouse gas emissions (GHG) generated from burning fuels.” It charges on each unit of GHG emitted in order to reduce the consumption of greenhouse gas producing fuels. According to the textbook, we know that the advantage of a carbon tax is that it not only lead to a cost-effective allocation, but also it stimulates the development of innovative methods to reduce emission and to promote technological progress. In addition, under the revenue neutral carbon tax system, tax revenue of the B.C. Government will remain unchanged (neutral), even if there are changes in tax laws. Because they may have different tax rate according to the different level of GHG emission (it would be further discussed in Distributional effects part).

The Implementation of the Carbon Tax in B.C.

To better understand how the carbon tax works in B.C., we need to know tax base, taxpayer/collection point, tax rates, and the use of revenue. Basically, the general relationship between tax base, taxpayer/collection point, tax rates, and the use of revenue is Tax base * Tax rate = Tax revenue. In B.C., not all the GHG emission are covered in carbon tax, and the carbon tax is only applied to the purchase and use of fuels within B.C. According to the British Columbia revenue-neutral carbon tax principle, “The tax has the broadest possible base – Virtually all emissions from fuel combustion in B.C. captured in Environment Canada’s National Inventory Report are taxed, with no exemptions except those required for integration with other climate action policies in the future and for efficient administration.” So, we can know that the emission of CO2 and other GHGs from combustion of fossil fuels are the main tax based. To be more specific, emissions of CO2 from industrial producing and processing are not applied to the carbon tax, such as the production of oil, gas. In addition, the emission of other GHGs such as CH4 and N2O from the disposal of solid waste and the agricultural sector are not applicable to carbon tax. In the Provincial Budget, it explains that “The tax base includes fossil fuels used for transportation by individuals and in all industries, including the combustion of natural gas to operate pipelines, as well as road, rail, marine and air transportation. As well, the tax bases includes fuel used to create heat for households and industrial processes, such as producing cement and drying coal.” For the tax rate of different GHG emission from various fuels, we can refer to Carbon Tax Rates by Fuel Type provided by Ministry of Finance, and the use of tax revenue will be discussed in the last part. By the way, according to B.C. revenue-neutral carbon tax principle, “The tax will be integrated with other measures” – This means that the other carbon policy such as cap-and-trade system would also be implemented together with the revenue-neutral carbon tax.

What effect will the carbon tax have on GHG emissions?

We believe that the carbon tax would change people’s consumption behavior due to their respond to price signals. “Several studies show that consumers generally respond to higher gasoline prices by reducing consumption either by purchasing more fuel efficient vehicles or by driving less.” To assess the effectiveness of carbon tax policy, we can refer to the reduction potential in the future. A preliminary estimate by an independent consulting company (MK Jaccard and Associates) suggests that “in absence of all other GHG reduction strategies, the carbon tax alone could cause a reduction in B.C.’s emissions in 2020 by up to three million tonnes of CO2 equivalent annually. This is roughly the equivalent to the greenhouse gas emissions created by 787,000 cars per year. ” From the estimate, we do see the significant mitigation potential under this carbon tax system.

Distributional Effects of the Tax Policy

One of the primary concerns around a carbon policy is that by raising the price of energy it disproportionately impacts the poor. However, if we refer to some of British Columbia revenue-neutral carbon tax principles, we will found that the distributional effects of the policy will be offset by Corresponding program to help the low income individuals and families. The related principles are listed as follow:

• “All carbon tax revenue is recycled through tax reductions”. This principal means the carbon tax revenue are planned to return to the taxpayers (individuals, businesses, and local governments) through tax reductions such as income tax reduction, instead of funding government program. “Since it was first introduced in 2008, the carbon tax has returned $500 million more to taxpayers in tax reductions than it has raised in revenue.”

•  “The tax rate started low and increases gradually”, which gives individuals and businesses time to “make adjustments and respects decisions made prior to the announcement of the tax”.

•  “Low-income individuals and families are protected”– The low-income individuals and families will get refunded by the Low Income Climate Action Tax Credit that is designed to help offset the carbon tax paid. “The credit is paid quarterly along with the federal GST credit and BC HST Credit. The credit provides an annual maximum of $115.50 for each adult and $34.50 for each child ($115.50 for the first child in a single parent family). The maximum credit is reduced by 2 per cent of net income in excess of $31,711 for single individuals and $36,997 for families. ”

Reference

1. B.C. Ministry of Finance. Carbon Tax Review, and Carbon Tax Overview. Retrieved on 9th March, 2014 from: http://www.fin.gov.bc.ca/tbs/tp/climate/carbon_tax.htm

2. B.C. Ministry of Finance. What is a Carbon Tax?. Retrieved on 9th March, 2014 from: http://www.fin.gov.bc.ca/tbs/tp/climate/A1.htm

3. B.C. Ministry of Finance. How the Carbon Tax Works?. Retrieved on 9th March, 2014 from: http://www.fin.gov.bc.ca/tbs/tp/climate/A4.htm

4. B.C. Ministry of Finance. Myths and Facts about the Carbon Tax. Retrieved on 9th March, 2014 from: http://www.fin.gov.bc.ca/tbs/tp/climate/A6.htm

5. Ministry of Finance Tax Bulletin June 2013 Retrieved on 9th March, 2014 from: http://www.sbr.gov.bc.ca/documents_library/bulletins/mft-ct_005.pdf

6. David G. Duff. (2008). THE REALITY OF CARBON TAXES IN THE 21ST CENTURY. South Royalton: Vermont Law School

7. Tietenberg, Thomas. (2011). Environmental & Natural Resource Economics 9th Edition. New Jersey: Pearson Education, Inc.,

The last week! It seems that it is impossible for me to achieve the breakeven in last. But it is ok, what counts is the experience, rather than the profit. With our trading game coming to the closure, I believe it is time for me to do a summary note to recap what I have learned in 6 week’s trading. The graph below is the portfolio overview for these 6 weeks.

In this period of time, I focused on the soybean, corn and wheat trade. From the micro perspective, what effects the price most I think is the weather condition, and watching the weather forecasting is the most direct way to do the prediction. The rainfall/drought means the growth/drop of the production, which in turn leads to the higher/lower supply making the increase/decrease of the contract price. In addition, I believe monetary factor has a significant impact on price as well. For instance, price of soybean rose this week as the dollar slumped, improving the prospects for exports from the U.S…Also, in last, weak dollar sent the wheat futures price higher on Thursday and Friday. Basically, the supply and demand factors, such as production and consumption, import and export, are the key issues to decide whether I should go long or short for different kind of commodities. On the other hand, the macro factor like the recent stability of the economy, the political policies and events, these are also the cause of the change of price. However, in my trading game, I did not consider a lot about those parameters because I am not so familiar with the macro issues, which remains a lesson to be learn.

By the way, in terms of my ‘quick money’, I am not sure whether the professional traders use this kind of strategy. But I believe, if you have time and energy to implement it, you will make it. Although its small profits each time, the huge quantity of trades will bring you a considerable payoff. It is quite a pity for me that I cannot pay attention to the trading game every hours or even every day, therefore, I was not able to buy low sell high for so many times.

This is a quite busy week with only one trade. The investment outcome has been negative for five weeks ╮(╯﹏╰）╭ Here are my portfolio summary and overview for the 5 weeks’ trading.

I lost most on the wheat contract, which is now with a -7.63% return. I shorted it at 2 week before, and I am not willing to pull over due to my previous experience (always feel regret after pulling over). I am now wondering whether it is the time for stopping bleeding. The price of wheat keeps fluctuating this week, which dropped on Wednesday according to reports of increased competition from India and continued good weather for wheat planting in U.S… Also, higher-than-expected production from Australia and speculations that China’s actual imports of wheat could be lower than expected further dampened wheat. However, a threatened rail strike in Canada was seen supportive of wheat as it could push more export demand to U.S, therefore, the price of wheat futures rose today. In addition, the weaker dollar as well serves as a reason for the increasing price today. Since there is just a week left, 9next week I should focus more on the price and choose a relatively suitable price to stop bleeding. (The graph below shows the change of Dec. wheat price)

For other trades, I short a unit of soybean to open yesterday. After I placed the position, the price started to increase sharply due to the weak dollar. (GEE!!! I am total not a talent on prediction.) But the good news for me is that the price slipped this day afternoon because the weather forecast in the U.S. and South America is suitable for production and planting of soybean. However, the fall in soybean prices was limited on the better-than-expected monthly crush report and active buying from China. So I need to hold this contract until next also the last week. And my ‘quick money’ corn did not work quickly, it just kept a tiny loss every time when I check the open position. So I think my short-term-focused strategy is a time-consuming practice, which is more favorable for non-exam and non-assignment week. Whatever, if time permitted, I believe it will work. (The chart below is the price trend of soybean on Thu and Fri)

THANKS FOR READING AND GOOD LUCK NEXT WEEK!

SANG SHENG

2013/10/18

This is a busy week with the still negative portfolio return on my trading game. Here are my portfolio summary and 4weeks’ account overview.

My ‘Quick Money’ strategy seems not as powerful as last week. I deal with a long position of a unit of corn at a relatively low price, and waited for the increase of the price. It did grew a little after a short time, but I was not willing to sell it because of tiny profit. After then the price began dropping, and I suffered a loss on this transaction. What I realize from it is the main idea for my quick money strategy is Quick Reaction for small income, however, greed totally ruins it by increasing my opportunity cost. If I just sell it to close even with a small profit, I will have time and energy to focus on another trading. So I make modify the rule for this strategy, I will make sure to increase quantity of trades to guarantee the amount of profit. (The chart below shows my trading details.)

What I learned from my short-term strategy is also applicable for my long-term trading. I cover the remained unit of soybean immediately when I found that the soybean began to make a profit. Because USDA is away, it is hard for me to have a reference on my expectation, such as outlook of a specific agriculture commodity, world agricultural production Data, and the estimated report. So, I think I had better cover to close in such an unpredictable condition.

As for the wheat I shorted two weeks ago, the price shows a continuous rising trend due to positive export potential. Renewed concerns over a smaller Argentina wheat plantation, which could push more exports to Brazil from the United States and Canada, which leads to the growth of price. Till now, I have experienced a -5.69% return on it, but I don’t want to pull out since there are still one month and half to make the delivery. So I just keep the contract here.

So, what’s my plan for next week? Continue to implement my ‘Quick Money’, keep the new rule in mind. Hope I can do a lot of trades with profits through it next week.

My portfolio return remains negative in the 3^rd week. Here are my week’s trading summary and portfolio overview for these three weeks:

Seasonal harvest pressure along with USDA’s Grain Stocks report of better than expected soybean yields give a negative tone to the soybean market at the beginning of this week. Then I covered the one unit of soybean I shorted last week. If I were patient enough, I would earned more in this sharp drop instead of suffering a big loss in last week. The story was that last week I shorted three units of soybean, but I was so impulsive to deal with an immediate cover when the price showed a slight growing tendency (impulse is the devil!!). But I believes it was never too late to learn about this, and I will keep patient when facing the fluctuation of the price. Further, according to weather forecasting, the increasing rainfall on Wednesday till weekend is going to slow down the harvest of soybean, especially in the Midwest and the northwest of the US, which caused the price increasing for these days. Another lesson I learned here is that pay more attention on the weather condition, because the weather forecast serves as a vane of the future price. (The graph below show the fluctuation of the price of soybean this week.)

There remained a short position of wheat with a negative payoff. Since the price kept higher than the price I shorted ($6.55), this week I did not have any movement on it. The current continuous growth of wheat price reached at the peak since the middle of July on speculation that the United States may be in better export demand. Lower planted area in Ukraine, possible new demand from Brazil and China and short-covering by investors all supported wheat. In addition, the UNFAO lower the yield of wheat on 2013/14 from 709.8 to 7.046 million metric tons, and also lower the estimated production in South American. So, all the reports and new I read indicated the increase of the price of wheat futures. But I kept still to wait for the expected export report released by USDA. Unfortunately, Due to the lapse in federal government funding, this website is not available. It just liked sand in the gear on my trading!! As a result, I decided to keep it even though I was bleeding, because the price will definitely drop to $6.55 again.

By the way, I started my plan B on the trading game. It is a time-consuming strategy but it really worked (I earned about $200 on quick covering corn, also it would help me earn it a lot on soybean if had not sold it accidently!!). I call it Quick Money. What we should do is just make a quick deal based on the most possible direction and simple keep eyes on the change of price then just cover or sell your commodities to close if you can earn a little more than the transaction cost. By this means, I used to get a little of profit in the stock, and I hope it still works in the future on trading futures!

Thanks for reading,

Sang Sheng