Month: March 2014

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.,